20.1.4  Failure to Deposit Penalty (Cont. 1)

20.1.4.12 
Form CT–1

20.1.4.12.3  (01-06-2012)
Computing the FTD Penalty RRTA

  1. Refer to Form CT–1 deposit requirements. See IRM 20.1.4.12.2, Deposit Requirements RRTA Part II.

  2. See IRM Exhibit 20.1.4-4, Forms 941, 943, 944, 945, and CT-1 Deposit Requirements, to determine timely deposits.

  3. Compare the taxpayer’s liability, using the information from the Monthly Summary of Railroad Retirement Tax Liability or the total tax liability from Form 945-A, Annual Record of Federal Tax Liability, with the deposits made. If the information is unavailable, use the averaging method.

  4. If there is an overstatement on the RRTA tax liability due to a line adjustment, adjust the last liability regardless of the dollar amount.

  5. See IRM 20.1.4.8.6, $100,000/One-Day Rule, if the return indicates a monthly or semi-weekly liability of $100,000 or more.

20.1.4.12.3.1  (04-20-2010)
Averaged Penalty RRTA

  1. Average the tax liability amount when the Monthly Summary of Railroad Retirement Tax Liability or the total tax liability, Form 945-A, Annual Record of Federal Tax Liability, is incomplete, blank, or has a negative amount.

  2. The liability breakdown provided by the taxpayer on Form CT–1 must equal the tax reported, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  3. See IRM 20.1.4.8.8.1, Averaged Penalty (Forms 941, 943, 944, and 945, and CT-1).

20.1.4.13  (05-22-2009)
Overview of Manual (Restricted TC 180/181) and Systemic (Computer Generated TC 186/187)

  1. The following transactions codes (TC) identify assessment, abatement, or no change of the FTD Penalty:

    1. TC 186 — computer generated assessment,

    2. TC 187 — computer generated abatement,

    3. TC 180 — manual assessment (systemic penalty recalculation restricted),

    4. TC 180 for "zero" — penalty recalculation results in a no change (systemic penalty recalculation restricted), and

    5. TC 181 — manual abatement (systemic penalty recalculation restricted).

  2. Computer generated assessments result from a Master File analysis of the account information.

  3. Manual adjustments (TC 180/181) restrict Master File from systemically recalculating the penalty. Credits transferred in or out of a module that is restricted, will not cause a systemic recalculation of the penalty because the original or corrected record of federal tax liability (ROFTL) information is not accessible to Master File. See IRM 20.1.4.22, Master File Assessments and Recomputations.

  4. Manual assessments are input through IDRS. Employees who cannot directly input the penalty assessment to IDRS must prepare an appropriate document to request input of the assessment. Various documents are available for this purpose, such as:

    • The preprinted penalty and interest block found on some tax forms,

    • Form 4844, Request for Terminal Action,

    • Form 4364, Delinquency Computations,

    • Form 3870, Request for Adjustment,

    • Form 8485, Assessment Adjustment Case Record,

    • Form 2859, Request for Quick or Prompt Assessment,

    • Form 5599, TE/GE Examined Closing Record.

20.1.4.14  (04-20-2010)
Computer Codes

  1. Various codes are used to identify conditions regarding the penalty assessment, e.g., base period codes, state code indicator, penalty computation codes, penalty indicator codes, computer condition codes, schedule indicator codes, and employment codes.

20.1.4.14.1  (04-20-2010)
Base Period Codes

  1. The Base Period (BASE–PD) code indicates which deposit schedule was used for FTD penalty analysis.

    Note:

    Base Period Codes are not applicable to Form 720, Form 940, and Form 1042.

  2. The Base Period (BASE–PD) codes are:

    1. 0 = FTD Penalty Bypassed [Tax Years 2000 and Prior] A base period code of zero indicates that the FTD Penalty computation was bypassed at the time the return posted based on the presence of certain exception criteria. Examples of exception criteria are: The input return record contains Computer Condition Code J. The Entity Employment Code is S (Foreign Subsidiary)— Form 940, Form 941, Form 943, and Form 945.

    2. 1 = Monthly Depositor

    3. 2 = Semi-weekly Depositor

    4. 3 = Monthly/Daily/Semi-weekly Depositor— A monthly depositor who must make a $100,000 or more (daily) deposit immediately becomes a semi-weekly depositor for the remainder of the current year and for the following calendar year.

    5. 4 = Semi-weekly/Daily/Semi-weekly Depositor—Semi-weekly depositors who incur a $100,000 or more (daily) deposit requirement return to a semi-weekly deposit schedule after the daily deposit is made.

  3. The BASE-PD codes are displayed on TXMOD, BMFOLK, BMFOLR, and FTDPN.

  4. You can manually override the posted BASE-PD codes of 1, 2, 3, or 4 at Master File using CC REQ77, TC 971 and action code for the quarter affected. The TC 971 will not change the actual BASE-PD code displayed on TXMOD, BMFOLK, FTDPN, and BMFOLR, but will cause Master File to recognize the new deposit requirement and adjust the penalty accordingly. The TC 971 and action code will be the established audit trail.

    1. Action code 040 will recompute the penalty using BASE-PD code 1. [TC971/151-CD] Overlay CD with 040.

    2. Action code 041 will recompute the penalty using BASE-PD code 2. [TC971/151-CD] Overlay CD with 041.

    3. The TC 971 with action code 040 or 041 will be displayed on TXMOD and all transcripts.

  5. The purpose of allowing a change to the BASE–PD code is to establish an audit trail on a particular account. The BASE–PD code should be changed only in limited situations. For example:

    1. The Service may determine that the employer should not be allowed to continue as a monthly depositor.

    2. The employer may submit information that would warrant a change to the account.

    3. The TC 150 belongs on another TIN or tax period.

20.1.4.14.2  (01-06-2012)
State Code Indicator

  1. The STATE Code Indicator is entered on Form 941, Form 943, Form 944, and Form 945, by the taxpayer to show the state in which deposits are made. If the taxpayer deposits in more than one state, the multiple state depositor (MU) code is entered. The State Code Indicator is displayed on TXMOD, FTDPN, and transcripts.

    Exception:

    The State Code Indicator will not be entered on 2012 and later tax returns per TD 9507 (REG-153340-09) that eliminated statewide legal holidays (for purposes of figuring the FTD liability due dates) and updated the term "banking day" to "business day."

    .

    1. Observed state banking holidays are considered non-business days in the determination of deposit due dates in 2011 and prior.

    2. If the state code is MU, Master File will not use any state banking holidays, as there is no way to match the corresponding deposits and liability amounts that belong to any given state. The systemic computation of the penalty will be done using federal holidays only.

    3. Manually recalculate the penalty (using the applicable state banking holidays), if the taxpayer provides a breakdown of the deposits and liability amounts that correspond to each state.

  2. See IRM 2.3.28.6, Federal and State-Banking Holidays, for a list of the observed state banking holidays through 2011.

20.1.4.14.3  (01-06-2012)
Penalty Computation Codes (PCC)

  1. Penalty Computation Codes (PCC) identify conditions which affect the penalty computation. This information is useful when responding to taxpayer inquiries or when making subsequent adjustments.

  2. Computer assessed (TC 186) FTD penalties generate the applicable PCCs.

    • The computer generated PCC is displayed with TC 186 on IDRS/TXMOD and is listed in the "FTD-PNL-CD>" field.

    • Master File Transcripts (MFTRA), BMFOLT, and balance due notices also display the computer generated PCC.

  3. Manually assessed (TC 180) FTD penalties require manual input of the applicable PCC. PCCs should be entered on the FTD penalty assessment or adjustment document.

    • The manual PCC is displayed in the "ADJ-RSN-CD>" field on IDRS/TXMOD and is listed with TC 290 transaction code carrying the same DLN as TC 180 assessment.

    • Master File Transcripts (MFTRA), BMFOLA, and balance due notices also display the manual PCC.

  4. Definitions for various PCCs are as follows:

    1. PCC 003 applies when assessing the FTD penalty with specific liability and payment information (e.g., computing with a complete record of federal tax liability (ROFTL) schedule), and NO avoidance credits (TC 640/670 or marked TC 610) are present.

    2. PCC 011 applies when assessing the FTD penalty on averaged tax liability information.

    3. PCC 018 applies when charging the FTD penalty on a CAWR or FUTA assessment.

    4. PCC 041 applies when assessing the FTD penalty for avoiding the deposit system and the following conditions exist: ONLY avoidance credits (non-EFT TCs 610/640/670) are posted and the taxpayer provided good liability information.

    5. PCC 042 applies when assessing the FTD penalty for avoiding the deposit system and the following conditions exist: A COMBINATION of one or more, unreversed non-avoidance credits (TC 650/700/710/716/760), are posted with either one or more, unreversed avoidance credits (non EFT TC 640/670 or a 'marked' TC 610) and the taxpayer provided good liability information.

    6. PCC 043 applies when assessing the FTD penalty for avoiding the deposit system and the following conditions exist: Only unauthorized deposits/payments were made and the tax liability is averaged.

    7. PCC 044 applies when assessing the FTD penalty for avoiding the deposit system and the following conditions exist: The taxpayer made both deposits (TC 650) and unauthorized payments (TC 670/610) and the tax liability is averaged.

    8. PCC 054 applies when assessing the FTD penalty on averaged tax liability information and the following conditions exist: A semi-weekly depositor provided a monthly ROFTL schedule and the taxpayer made insufficient or late deposits (TC 650).

    9. PCC 055 applies when assessing the FTD penalty on averaged tax liability information and the following conditions exist: A semi-weekly depositor provided a monthly ROFTL schedule and the taxpayer made unauthorized payments (TC 670/610).

    10. PCC 056 applies when assessing the FTD penalty on averaged tax liability information and the following conditions exist: A semi-weekly depositor provided a monthly ROFTL schedule and the taxpayer made insufficient or late deposits (TC 650) and unauthorized payments (TC 670/610).

    11. PCC 057 applies when assessing the FTD penalty on averaged tax liability information and the following conditions exist: An averaged monthly tax liability of $100,000 or more, and the taxpayer made insufficient or late deposits for tax periods beginning on or after January 1, 1993 ( Form 941, Form 943, and Form 945).

  5. PCCs 054, 055, 056, and 057 are available for use to address penalty assessments based on averaged computations related to 1993 and later deposit rules and $100,000 or more liabilities. Although PCC 054, 055, 056, and 057 appear on Master File records, they default to PCC 011 on notices.

  6. See IRM Exhibit 20.1.4-10, Penalty Computation Code (PCC) Definitions.

20.1.4.14.4  (04-20-2010)
Penalty Indicator Codes (PIC) (15 Percent Rate)

  1. Penalty indicator code (PIC) "1" is generated with the systemic TC 186 posting in the same cycle as the TC 150 to mark the account module for a potential 15 percent penalty rate on the amount of the unpaid tax. Under the four-tier penalty system, the 15 percent penalty rate is applied to the balance due (tax only) that remains unpaid after notice and demand for the FTD penalty (e.g., 23C date plus 10 days). The fourth tier is not systemically marked or assessed if the FTD penalty (systemic TC 186) was not previously assessed. The systemic analysis on whether to assess the additional 5 percent penalty (total penalty is limited to 15 percent, of which 10 percent has already been assessed with PIC "1" ), is held 5 cycles to allow enough time for processing of the taxpayer's subsequent payment. After the 5 cycle hold expires, the account is analyzed and if a payment (dated within 10 days of the prior notification of tax due) has not posted to full pay the balance of tax an additional 5 percent penalty is systemically assessed with a separate TC 186 identified with a PIC "2" .

    1. PIC "1" is present with the initial TC 186 and will appear on TXMOD in the "FTD-INCREASED-PNLTY-CD>_" field to mark the potential additional 5 percent penalty rate. See example below of PIC "1" posted on TXMOD with the initial TC 186 to mark the potential 5 percent penalty rate.

      Example of PIC 1 posted to TXMOD
      186 03312011 3,652.28 201112 38139-039-88615-1 FTD-PNLTY-CD>003
      FTD-INCREASED-PNLTY-CD>1

    2. PIC "2" is present with the subsequent TC 186 (posted 5 cycles after the initial TC 186 with PIC "1" ) and will appear on TXMOD in the "FTD-INCREASED-PNLTY-CD>_" field to indicate the additional 5 percent portion of the FTD penalty. See example below of PIC "2" posted on TXMOD as the additional 5 percent portion of the FTD penalty.

    Example of PIC 2 posted to TXMOD
    186 05052011 1,791.75 201117 38139-039-88615-1 FTD-PNLTY-CD>003
    FTD-INCREASED-PNLTY-CD>2

    Caution:

    If a PIC "1" is present with the initial TC 186 (posted in the cycle to the TC 150), check to be sure that the systemic 15 percent fourth tier penalty amount is not pending for posting as a subsequent TC 186 marked with a PIC "2" .

20.1.4.14.5  (04-20-2010)
Computer Condition Codes (CCC)

  1. Computer Condition Codes are assigned by tax examiners or are computer generated during the processing of the return. They identify a special condition or computation for the computer. Computer Condition Codes post to the Master File.

  2. Returns processed with Computer Condition Code (CCC) "J" are excluded from FTD penalty processing. The CCC "J" is used in limited situations and only when authorized by the Office of Servicewide Penalties.

20.1.4.14.6  (01-06-2012)
Schedule Indicator Codes (SIC)

  1. Schedule Indicator Codes (SIC) identify conditions that may affect FTD penalty computations and is computer generated by Master File unless manually coded on the return during the return processing.

  2. Because no more than one SIC can be entered on any one return, a return with SIC other than "1" or "0" could have more than one applicable condition.

  3. A SIC 2 coded on the return during the return processing will prevent Master File from determining a penalty amount. Instead, Master File generates CP 194, Possible FTD Penalty Notice. The Campus manually reviews all CP 194 accounts.

  4. The SIC values range from numeric "0" through "7" and are displayed in the "SIC" field of the return record and on all transcripts for returns. The number indicates which condition applies.

  5. See IRM Exhibit 20.1.4-11 , Schedule Indicator Code (SIC) Definitions.

20.1.4.14.6.1  (04-20-2010)
Schedule Indicator Code (SIC) "0"

  1. SIC "0" — Master File may generate a CP 194 notice on an account with SIC "0" . This means conditions exist, other than those identified by SICs "1" through "7" , that require manual review of the account.

  2. The reason Master File generates a CP 194 notice with a SIC "0" may not be clearly evident, since SIC "0" means the return has a valid record of federal tax liability (ROFTL) schedule for computing the penalty.

    1. If the tax return shows valid ROFTL information, use the ROFTL figures to compute and assess the penalty.

    2. If the tax return shows invalid ROFTL information, compute the averaged liability and propose the penalty.

    3. If the return is not available use the ROFTL figures from the account transcripts, TXMOD, BMFOLR, or BRTVU, when valid.

    4. If the figures are not valid or if the ROFTL information is not available, then average the liability.

    5. Send Letter 313C and the appropriate form or schedule to the taxpayer.

20.1.4.14.6.2  (04-20-2010)
Schedule Indicator Code (SIC) "1"

  1. SIC "1" — The original tax return is not required because SIC "1" indicates that the return does not have a complete and accurate record of federal tax liability (ROFTL) schedule.

  2. When a SIC "1" is input to a return during the return processing, the ROFTL schedule is not transcribed because it has been deemed as invalid. Master File computes a proposed penalty by averaging the tax and generates a CP 207 or CP 207L notice (Proposed Averaged Penalty) to the taxpayer, as a means to secure a valid ROFTL schedule.

  3. The systemic proposed averaged penalty is held by Master File for 15 cycles to allow ample time for:

    • The taxpayer to return the requested ROFTL information,

    • Recalculating the FTD penalty using the corrected ROFTL schedule,

    • Manually inputting the related penalty adjustment (based on the valid ROFTL schedule), thereby

    • Overriding the systemic penalty assessment calculated using the averaged ROFTL schedule.

20.1.4.14.6.3  (04-20-2010)
Schedule Indicator Codes (SIC) "2" and "3"

  1. SIC "2" — If Master File generated the CP 194 notice because a reasonable cause statement is attached to the return, follow procedures for processing reasonable cause requests.

    1. See IRM 20.1.4.26.1, Reasonable Cause.

    2. If the taxpayer does not meet reasonable cause criteria, then assess the penalty.

    3. If the return is not available, then use the record of federal tax liability (ROFTL) figures from the account transcript.

    4. If those figures are not valid or if the ROFTL information is not available, then average the liability.

  2. SIC "3" — "Church FICA Issue" or "Church Social Security Issue" notated on return. See IRM 3.11.13.14.5.

20.1.4.14.6.4  (04-20-2010)
Schedule Indicator Codes (SIC) "6" and "7"

  1. SIC "6" — Good Record of Tax Liability (ROFTL) schedule provided, penalty is calculated on a liability amount of $100,000 or more.

  2. SIC "7" — The original tax return is not required because SIC "7" indicates that the return does not have complete and accurate ROFTL schedule and the liability amount(s) when averaged are $100,000 or more.

    SIC "7" indicates that ROFTL schedule was missing or not transcribed because it was invalid. Master File computes a proposed penalty by averaging the tax and generates a CP 207 or CP 207L notice (Proposed Averaged Penalty) to the taxpayer as a means to secure valid ROFTL schedule.

    The systemic proposed averaged penalty is held by Master File for 15 cycles to allow ample time for:

    • The taxpayer to return the requested ROFTL information,

    • Recalculating the FTD penalty using corrected ROFTL schedule,

    • Manually inputting the related penalty adjustment (based on valid ROFTL schedule), thereby

    • Overriding the systemic penalty assessment calculated using averaged ROFTL information.

20.1.4.14.7  (04-20-2010)
Employment Codes "A" and "F"

  1. Employment Code "A"

    1. Beginning 01/01/2009, the FTD penalty computation is systemically bypassed when the employment code "A" is present on the entity module.

    2. An employment code "A" is assigned to State and local government Health and Welfare agencies, acting as agents under IRC 3504, with respect to employers for in-home domestic services for recipients of public assistance.

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

    4. These agencies are not required to supply a record of federal tax liability (ROFTL) schedule and need only to make payment(s) by the due date of the return.

    Caution:

    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.

  2. Employment Code "F"

    1. An employment code "F" is assigned on the entity module to identify federal agencies.

    2. When the employment code "F" is present on the entity module, the FTD penalty computation is systemically bypassed. See IRM 1.2.20, Policy Statements for Penalties and Interest Activities, for Policy Statement 2–4 as it relates to federal agencies.

20.1.4.15  (04-20-2010)
CP 194 Notices (Possible FTD Penalty)

  1. Master File generates a Possible FTD Penalty Notice, Computer Paragraph (CP) 194, for the following:

    1. Returns with Schedule Indicator Codes (SIC) input during the code and edit phase of return processing.

    2. Certain 941, 943, 944, 945, 940, 720 and 1042 filers.

    3. Form CT–1.

    4. Form 941M, if the filing requirement is 10.

    5. Forms 941PR, 941SS, 943PR, and 940PR for the Philadelphia Campus only, when they meet the conditions in (a) and (b) above.

  2. Issuance of the CP 194 notice means the Campus must review the account and manually calculate the penalty. Whenever possible, telephone contact with the taxpayer should be used to resolve the CP 194 issue.

  3. The Campus must process CP 194 notices within 75 calendar days of the IRS Received Date. This includes issuing Letter 313C to the taxpayer.

  4. Master File generates 2 copies of the CP 194 notice. The Campus Files area receives the notices and secures the original related return. One copy of the notice is attached to the tax return and the other is used as the return charge out. If the Files area does not send the original return, proceed as follows:

    1. Form 720, Check Command Code(CC) BRTVU — The original Schedule A, Excise Tax Liability section of Form 720 return is transcribed, when valid, and can be viewed using CC BRTVU.

    2. If Files attaches an incorrect tax return, send the return (with the CP 194 notice) back to Files and request the correct return.

    3. If Files did not attach a return, review the charge out information or IDRS to determine if the tax return is in another function. If so, contact that area to secure a copy of the return.

    4. If neither the original return record of federal tax liability (ROFTL) schedule nor a copy is available, follow instructions for averaging the tax liability. (Refer to computation procedures for the applicable return.)

  5. If the case has other freeze conditions, coordinate with the appropriate area for resolution.

20.1.4.15.1  (01-06-2012)
Working CP 194 Notices

  1. On Computer Paragraph (CP) 194 notice accounts that show a balance due, conduct the following IDRS research. This helps ensure that credit posting problems are identified and corrected before computing the penalty.

    1. Review the account transcript (TXMOD) to see if any timely deposits posted after the generation of CP 194 notice.

    2. Review TXMOD for other tax periods to see if there is a misapplied deposit intended for the period in question.

    3. Review CFOL, IDRS, etc. for FTD Credit Module (01 000000) to see if it has a deposit intended for the current period.

    4. Review UPTIN for the EIN to see if any deposits are unpostable.

    5. Review URINQ/XSINQ for the name control to see if any credits are in the Unidentified or Excess Collections accounts.

    6. Review FINDE/NAMEE for any other TINs assigned to this employer.

  2. On CP 194 notice accounts with a credit balance, conduct the following IDRS research:

    1. Check for any pending assessments. If TC 976 is present, a duplicate return (or amended return) has posted. Hold CP 194 notice until CP 193 notice generates. (Master File generates CP 193 notice when a duplicate or amended return posts to an account.) Follow local procedures for associating multiple cases.

    2. Check for other control bases. If one is present, coordinate with the other area.

    3. Check for debit balances on other account periods to see if the credit posted in error. If so, transfer the payment(s).

  3. No penalty due, tax $2,500 or more on CP 194 notice:

    1. Use blocking series 000–099 to indicate a refile DLN (original return or mag tape facsimile is available), or

    2. Use blocking series 150–159 to indicate a non-refile DLN.

    3. Input TC 180 $.00 as a source doc (SD).

    4. Attach CP 194 notice and page 1 of FTDPN.

      Note:

      For Form 720, attach the manual computation.

    5. For Correspondence Imaging System (CIS) cases, input TC 180 $.00 as a non-source document and capture the FTDPN computation screen on the CIS system.

    Exception:

    See IRM 20.1.4.3, Restrictions on Assessments, for the use of PRC 021 as it relates to≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.4.15.2  (04-20-2010)
Computing the FTD Penalty CP 194

  1. Each return type has its own format for capturing the information needed to determine if the tax reported on the return has been captured correctly and deposited/paid timely. Refer to the "Computing the FTD Penalty" section under the appropriate tax form for which the CP 194 notice generated.

20.1.4.15.3  (01-06-2012)
Proposing the Averaged FTD Penalty CP 194

  1. Propose an averaged FTD penalty when the record of federal tax liability (ROFTL) schedule or record of net tax (RONT) information is missing or invalid.

  2. To propose the averaged FTD penalty, correspond with the taxpayer using Letter 313C. See IRM Exhibit 20.1.4-12, ROFTL Enclosures.

  3. EXCEPTION: Assess the 10 percent avoidance penalty on the total tax amount if the penalty is entirely due to:

    1. Avoidance payments (TC 610, TC 670),

    2. Non EFT deposits when required to use EFT (before January 1, 2011), and/or

    3. Unpaid tax.

  4. The corrected ROFTL information, in this case, would not decrease the amount of the penalty.

    1. Send Letter 2782C or CP 568.

    2. Close the case.

20.1.4.16  (01-06-2012)
Issuing Averaged FTD Penalty Proposals—Letter 313C

  1. When proposing an averaged penalty, send Letter 313C, FTD Penalty Proposal. Enclose the appropriate record of federal tax liability (ROFTL) schedule with the two copies mailed to the taxpayer and suspense for 45 days. See IRM Exhibit 20.1.4-12, ROFTL Enclosures.

20.1.4.16.1  (04-20-2010)
Replies to 313C Letters

  1. Associate the taxpayer’s reply with the suspense copy. If not located, the averaged FTD penalty may have already been assessed and the case previously closed as a "No Reply."

    Note:

    If the reply is received late (after the averaged FTD penalty assessment), the new record of federal tax liability (ROFTL) schedule should be considered and the FTD penalty adjusted per item number (2) below.

  2. If taxpayer provides a completed ROFTL schedule:

    1. Recompute the penalty.

    2. Assess or adjust the penalty, if required. See IRM 20.1.4.17, 15 Percent 4th Tier Penalty.

    3. Send CP 568 or appropriate correspondex letter to inform the taxpayer of the correct penalty amount, the reason for the adjustment and the correct balance due.

  3. Taxpayer provides an unacceptable ROFTL schedule or other correspondence.

    1. Contact the taxpayer to explain why the information provided by the taxpayer is unacceptable.

    2. If unable to reach the taxpayer by phone, return the unacceptable ROFTL schedule or other correspondence to the taxpayer and explain why the information is unacceptable. Highlight pertinent areas if it would help the taxpayer.

    3. Include the appropriate blank Schedule of Tax Liability.

    4. Advise the taxpayer that if we do not receive acceptable information within 20 days, the proposed penalty amount will be assessed.

    5. Suspend the case for 30 days.

  4. Taxpayer provides an unacceptable ROFTL schedule or other correspondence after the averaged FTD penalty assessment.

    1. Contact the taxpayer to explain why the information provided by the taxpayer is unacceptable.

    2. If unable to reach the taxpayer by phone, return the unacceptable ROFTL schedule or other correspondence to the taxpayer and explain why the information is unacceptable. Highlight pertinent areas if it would help the taxpayer.

    3. Include the appropriate blank Schedule of Tax Liability.

20.1.4.16.2  (01-06-2012)
No Response Cases

  1. If the taxpayer does not reply within the suspense period, research IDRS for an open DUPF control base, or to see if a duplicate/amended (TC 976) filing condition is present (TC 976 usually generates CP 193 or CP 293).

    1. A taxpayer may resubmit a tax return with the completed record of federal tax liability (ROFTL) schedule rather than providing just the ROFTL schedule that was sent with Letter 313C.

    2. If a duplicate filing condition is present, refer to Business Tax Returns and Non-Master File Accounts guidelines.

    3. See IRM 21.7.9.4, Duplicate Filing Conditions Procedures, for working multiple issues.

  2. For no response cases, assess the averaged penalty. See IRM 20.1.4.17, 15 Percent 4th Tier Penalty.

20.1.4.17  (04-20-2010)
15 Percent 4th Tier Penalty

  1. Under the 4th tier penalty system, the 15 percent penalty rate is applied to the balance due (tax only) that remains unpaid after notice and demand for the FTD penalty (e.g., 23C date plus 10 days). The 4th tier penalty is not systemically marked or assessed if the FTD penalty (systemic TC 186) was not previously assessed.

  2. When assessing the FTD penalty and payment of the outstanding tax has not been received, the 15 percent 4th tier penalty may be applicable.

    Note:

    If TC 18X is assessed in blocking series 20, see instructions for the fourth tier penalty analysis located in paragraph 3 of IRM 20.1.4.20, CP 294 Notice- Possible 15 Percent Rate.

  3. If TC 180 is assessed with other than blocking series 20 and payment of the outstanding tax has not been received, suspend or otherwise monitor the module for 5 cycles for possible assessment of the 4th tier penalty. If payment of the outstanding tax has not been received within 10 days of the 23C date of TC 180:

    1. Multiply the unpaid tax amount by 5 percent (total penalty is limited to 15 percent, of which 10 percent has already been assessed),

    2. Input TC 180 for the result of above amount,

    3. Use the same PCC as in the original assessment/adjustment.

    4. Use blocking series 000–099 to indicate a refile DLN (original return or mag tape facsimile is available), or

    5. Use blocking series 150–159 to indicate a non-refile DLN.

  4. When assessing the FTD Penalty as a result of a CP 194 notice and the 15 percent 4th tier penalty is not applicable, (e.g., when the tax is full paid):

    1. Use blocking series 130–139 to indicate a refile DLN (original return or mag tape facsimile is available), or

    2. Use blocking series 140–149 to indicate a non-refile DLN.

20.1.4.18  (04-20-2010)
CP 207/207L Notices

  1. When the record of federal tax liability (ROFTL) section of the return is incomplete or illegible, Master File generates a CP 207 or CP 207L notice in an effort to secure a valid ROFTL schedule for Form 941, Form 943, Form 944, Form 945, and Form 1042 filers. Master File also generates CP 207/207L when the total tax liability reported on the ROFTL schedule did not equal the net taxes ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ for Form 941

    2. ≡ ≡ ≡ for Form 943

    3. ≡ ≡ for Form 944

    4. ≡ ≡ ≡ for Form 945

    5. ≡ ≡ ≡ ≡ for Form 940

    Note:

    CP 207L notices indicate that the averaged penalty amount is $75,000 or more. The "L" signifies "Large" dollar amount and the notices are reviewed by the Ogden or Cincinnati Large Corp Technical Unit (LCTU) prior to mail out.

  2. A negative entry will invalidate ROFTL schedule, even if the total tax liability reported on ROFTL schedule equals the net taxes, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    1. It is especially important to contact the taxpayer if this is the situation, so he/she will understand that his/her ROFTL schedule was rejected due to a negative entry and that it is impossible to have a negative liability—an adjustment may reduce subsequent liability(ies) to zero, but never below.

    2. Therefore, if a prior period tax adjustment results in a decrease in a tax liability, the taxpayer is to reduce the liability for the same day that the error was discovered and by the amount of tax decrease resulting from the error, but not below zero. Any remaining decrease should be applied to subsequent liabilities on the schedule.

  3. Exception: For tax periods prior to January 1, 2006, accounts with a balance due, credit balance, or math error are not issued CP 207 or CP 207L notices. Master File assesses the FTD penalty instead, with Penalty Computation Code (PCC) 011 (TC 186, PCC 011), and issues the first notice.

  4. Master File generates the proposed penalty taxpayer notice (CP 207 or CP 207L) and "holds" the FTD penalty assessment action for 15 cycles (weeks).

  5. If there is no reply to a CP 207 or CP 207L notice, or if the reply is not resolved and input by the 13th cycle (week) after issuance of the CP 207/207L notice, Master File will systemically assess an averaged penalty (TC186).

  6. Use blocking series 140-149 non-refile DLN (without original return) or blocking series 130-139 refile DLN (with original return) for CP 207 and CP 207L notice processing issues.

    Exception:

    An adjustment input in blocking series140-149 will not release a -A freeze condition and should not be used if working a duplicate return issue that requires the release of a "-A" freeze condition.

  7. Contact the taxpayer for additional information if there is enough time to receive the information and input the resulting adjustment by the 13th week after generation of CP 207 or CP 207L notices.

20.1.4.18.1  (01-06-2012)
Replies to CP 207/207L Notices

  1. CP 207 or CP 207L notices requiring penalty adjustments must be input by the 13th cycle after generation of the notice to allow time for posting of the adjustment before the automatic 15 cycle (week) hold expires.

  2. If the taxpayer provides a completed record of federal tax liability (ROFTL) schedule:

    • Compute the penalty based on the taxpayer’s figures.

    • If no penalty applies input TC 180 $.00 with the appropriate fourth position PRC, to prevent the systemic assessment of the averaged penalty, and send an explanation to the taxpayer.

      Caution:

      See IRM 20.1.4.3, Restrictions on Assessments, IRM 20.1.1, Penalty Handbook - Introduction and Penalty Relief, and IRM Exhibit 20.1.1-3, Penalty Reason Code Chart.

    • If a penalty applies, assess the penalty with the appropriate first position PCC, and send an explanation with the penalty computation to the taxpayer.

      Note:

      See IRM 20.1.4.14.3, Penalty Computation Codes (PCC), for a list of the valid PCC codes.

  3. Taxpayer provides an unacceptable ROFTL schedule, payment without ROFTL schedule, and/or other correspondence.

    1. Attempt to contact the taxpayer by telephone for the necessary information if there is enough time remaining to secure a valid ROFTL schedule and input the resulting adjustment by the 13th week after generation of CP 207 or CP 207L notices.

    2. If the 13th week after the generation of CP 207 or CP 207L notice has expired, allow the computer to assess the averaged penalty.

    3. Return the unacceptable ROFTL schedule or other correspondence to the taxpayer and explain why the information is unacceptable. Highlight pertinent areas if it would help the taxpayer.

    4. Include a new blank ROFTL schedule.

    5. Inform the taxpayer that a penalty adjustment notice will be issued and to submit the necessary information, as soon as possible, for reconsideration of the penalty.

  4. Taxpayer requests reasonable cause; corrected ROFTL schedule not provided. If the taxpayer did not provide an acceptable ROFTL, reasonable cause cannot be considered or denied. Follow procedures in (3) above.

  5. Taxpayer requests reasonable cause; corrected ROFTL schedule provided.

    1. Before considering or denying reasonable cause, recalculate the penalty using the corrected ROFTL schedule the taxpayer provided to determine if a penalty is in fact due.

    2. If the recalculation results in a penalty due, then follow the reasonable cause procedures. See IRM 20.1.1, Introduction and Penalty Relief, and IRM Exhibit 20.1.1-3,Penalty Reason Code Chart.

  6. If additional information for a reasonable cause determination is needed, proceed as follows:

    1. Attempt to contact the taxpayer by telephone for the necessary information if there is enough time remaining to secure the information and input the resulting adjustment by the 13th week after generation of CP 207 or CP 207L notice.

    2. If there is not enough time to prevent the systemic assessment of the penalty, adjust the penalty using the corrected ROFTL schedule and inform the taxpayer that a penalty adjustment notice will be issued and to submit the necessary information, as soon as possible, for reconsideration of the penalty.

  7. Taxpayer Submits Adjusted Return (Forms 941-X, 943-X, 944-X, 945-X), or amended return to reduce the tax.

    In situations where the CP 207 or CP 207L notice was generated because ROFTL schedule did not mathematically agree with TC 150, the taxpayer may reply with an adjustment to decrease the assessed tax. The request for tax decrease may have been submitted on:

    1. Adjusted Return (Form 941-X, Form 943–X, Form 944–X, or Form 945–X).

    2. Amended or supplemental return.

  8. Review the validity of the tax decrease per customer service procedures. If the adjustment is allowable, consider the FTD penalty issue on the revised tax. Determine if new tax and ROFTL figures now agree.

    1. If so, compute FTD penalty based on ROFTL information. Input TC 180 $.00 or assess the penalty, as appropriate.

    2. If not, attempt to contact the taxpayer by telephone for a new ROFTL schedule, if there is enough time remaining to secure a valid ROFTL schedule and input the resulting adjustment by the 13th week after generation of the notice. If time does not permit, average the new tax.

    3. If the averaged penalty on the corrected tax results in no penalty due, input a TC 180 $.00 with the appropriate PRC.

    4. If the averaged penalty on the corrected tax results in a penalty, assess the averaged penalty and inform the taxpayer to submit a new ROFTL schedule after notification of the averaged penalty assessment is received.

  9. If a tax decrease will not be input by the 13th week following CP 207 or CP 207L notice generation, follow the procedures below.

    1. If a tax decrease is being delayed, input TC 180 $.00 to prevent automatic generation of the averaged penalty. Input the appropriate penalty adjustment when TC 291 is input.

    2. If the adjustment is being disallowed, inform the taxpayer of the disallowance and the need to submit a revised ROFTL schedule after he/she receives notification of the averaged penalty assessment.

20.1.4.18.2  (04-20-2010)
Late Replies to CP 207/207L Notices

  1. If the taxpayer provides the corrected record of federal tax liability (ROFTL) information after the 13th cycle (week) but before automatic assessment (15th cycle), compute the correct penalty to determine if it differs from the proposed averaged penalty. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

  2. If the correct penalty differs, inform the taxpayer that we did not receive the reply in time to prevent the penalty from being automatically assessed and that we will adjust the account and issue a corrected notice.

  3. Suspend the case until TC 186 posts and then input the appropriate TC 18X, or

  4. If the reply is received after Master File automatically assesses the penalty (TC186), the reply should be treated as any other reply to an assessed penalty notice. Adjust the penalty as appropriate using:

    1. Blocking series 000-049 when the original tax return is part of the source document, or

    2. Blocking series 150-179 when the original tax return is not available.

20.1.4.19  (01-06-2012)
CP 276A and CP 276B Notices (FTD Penalty Waiver)

  1. The Computer Paragraph CP 276ACP 276B are educational notices that do not require a response from the taxpayer. The notices are issued when an FTD penalty is calculated but waived≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . In the past, taxpayers were not notified when the penalty was waived≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and as a result did not realize that they were doing something incorrect. They were later penalized on a subsequent tax period when the calculated penalty ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ as provided for in IRM 20.1.4.3, Restrictions on Assessments.

    • The CP-276A notice is issued when an acceptable record of federal tax liability (ROFTL) schedule was not provided with the return and the averaged FTD penalty calculated was at least $5, and was waived≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . The notice does not solicit for a corrected ROFTL schedule (since the penalty was already waived), but gives a list of the necessary steps to follow to ensure the ROFTL information is acceptable when submitted with future returns.

    • The CP-276B notice is issued when the FTD penalty is computed for at least $5 using a valid ROFTL schedule, and the calculated FTD penalty was not charged, but waived≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . The notice does not require a response from the taxpayer since the penalty was not charged. The taxpayer is not required to provide a re-designation schedule of deposits to possibly lower the penalty, since the penalty figured was not assessed.

  2. If a payment is remitted in response to a CP 276A or CP 276B notice because the taxpayer perceived this to be a bill, do not assess the FTD penalty. Inform the taxpayer this is an educational notice and does not require a response. Also, inform the taxpayer that the payment remitted for the waived penalty will be released for refund or offset. Apologize for the inconvenience.

20.1.4.20  (04-20-2010)
CP 294 Notice- Possible 15 Percent Rate

  1. Under the 4th tier penalty system, the 15 percent penalty rate is required for application to the balance due (tax only) that remains unpaid over 10 days after the date shown on the notice and demand for the FTD penalty.

  2. The CP 294 notice is issued if a subsequent TC 180/181 (Blocking series not equal to 130-149) posts within 5 cycles of a systemic TC 186 (assessed on the original TC 150 tax) with a balance of tax owed in the cycle of the TC 150.

  3. Starting 01–01–2010, new programming was implemented to include the possible issuance of a systemic CP 294 notice 5 cycles after a manual TC 180 (assessed with a TC 290/298 tax adjustment input in blocking series 20), if tax is still owing in the cycle of CP 294 notice analysis.

20.1.4.20.1  (04-20-2010)
Processing CP 294 Notice- Original (TC 150) Tax

  1. Upon receipt of CP 294, Possible 15 Percent FTD Penalty, the Campus takes the following actions:

    1. Review available account information.

    2. Determine net unpaid original (TC 150) tax amount as of the 23C date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    3. Consider only posted credits to determine net unpaid tax amount.

    4. Suspend an account until any pending or unpostable credits are resolved.

    5. There is ≡ ≡ ≡ ≡ ≡ ≡ ≡ on 15 percent tier assessments.

  2. When the net unpaid tax amount is determined:

    1. Multiply this amount by 5 percent (total penalty is limited to 15 percent, of which 10 percent has already been assessed),

    2. Input TC 180 for the resulting amount,

    3. Use the same PCC as in the original assessment/adjustment,

    4. Use blocking series 000-099 when adjusting CP 294 notice with original return or mag tape facsimile, or

    5. Use blocking series 150-179 when adjusting CP 294 notice without original return.

    6. There is ≡ ≡ ≡ ≡ ≡ ≡ on 15 percent tier assessments.

  3. Master File generates the appropriate taxpayer notice.

20.1.4.20.2  (04-20-2010)
Processing CP 294 Notice- TC 290/298 Blocking Series 20

  1. Upon receipt of CP 294, Possible 15 Percent FTD Penalty, the Campus takes the following actions:

    1. Review available account information.

    2. Determine net unpaid tax amount on TC 290/298 blocking series 20 as of the 23C date ≡ ≡ ≡ ≡ ≡ ≡ .

    3. Consider only posted credits to determine net unpaid tax amount.

    4. Suspend an account until any pending or unpostable credits are resolved.

    5. There is ≡ ≡ ≡ ≡ ≡ ≡ on 15 percent tier assessments.

  2. When the net unpaid tax amount is determined:

    1. Multiply this amount by 5 percent (total penalty is limited to 15 percent, of which 10 percent has already been assessed),

    2. Input TC 180 for the resulting amount,

    3. Use the same PCC as in the original assessment/adjustment,

    4. There is ≡ ≡ ≡ ≡ ≡ ≡ on 15 percent tier assessments.

  3. Master File generates the appropriate taxpayer notice.

20.1.4.21  (04-20-2010)
Taxpayer Responses

  1. Be sure that you are familiar with the CAUTION and instructions found in IRM 20.1.4.23, Manual Adjustments, before attempting to respond to any taxpayer requests for adjustment or explanation of his/her account.

20.1.4.21.1  (04-20-2010)
Payment Information

  1. If the taxpayer claims the Internal Revenue Service did not properly credit the account:

    1. Review the canceled check, bank data, or other information the taxpayer provided about the payment.

    2. Determine if the payment posted correctly to the account.

  2. If the deposit is not on the account, follow the functional procedures for tracing the payments.

  3. See Rev. Proc. 97–33 and Rev. Proc. 98–32 regarding proof of payment for EFT.

    1. For an Automated Clearing House (ACH) debit or credit entry, a statement prepared by the taxpayer’s financial institution showing a transfer (a decrease to the taxpayer’s account balance) will be accepted as proof of payment if the statement shows the amount and the date of the transfer and identifies the U.S. Government as the payee.

    2. For an FTA same-day wire, taxpayers may request that their financial institution obtain a statement from the FRB that executed the transfer. This statement will be accepted as proof of payment if the statement shows the amount and the date of the transfer and identifies the U.S. Government as the payee.

    3. For purposes of this section, statements prepared by a financial institution include statements prepared by a third party that is contractually obligated to prepare statements for the financial institution.

  4. If the payment has posted to the correct account after Master File generated the original penalty (TC 186), an automatic recomputation of the penalty occurs. Notify the taxpayer that the payment has been properly applied or that the payment was properly credited.

  5. If the payment posted to the correct account, after a manually assessed penalty (TC 180), recompute the penalty using the latest payment information.

  6. If a payment posted after the 15 percent rate is in effect, it may not be necessary to recompute the penalty.

  7. If the payment posted, but the transaction date does not agree with the information provided, see IRM 20.1.4.24.2, Misdated Deposits.

  8. For information regarding the application of payments, see IRM 20.1.4.7.5, Application of Payments.

20.1.4.21.2  (01-06-2012)
Revised Record of Federal Tax Liability (ROFTL) Provided

  1. Taxpayers may submit revised ROFTL schedule. It is possible for a change in the liability information to have no effect on the previous tax, but could result in a penalty change only. Therefore, the ROFTL area must be considered before a "True Dup" determination can be made. Assumption: amended ROFTL schedule is correct. For de minimis amounts, see IRM 20.1.4.6, De Minimis Exception to Deposit Requirements. For ROFTL info, see IRM 20.1.4.1.2, Criteria for Reporting Tax and ROFTL Information.

  2. Anytime the taxpayer changes ANY information or lines on a validated ROFTL schedule, a penalty computation is required (even if no penalty was originally assessed) to determine the applicable FTD penalty.

    Exception:

    See paragraphs (4) and (6) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944–X, 945-X, and CT-1X).

  3. A revised ROFTL schedule received may be a reply to CP 207 or CP 207L notice or Letter 313C.

    1. Check TXMOD to determine if Master File issued a CP 207 or CP 207L notice.

    2. Check ENMOD/TXMOD to see if a Campus issued Letter 313C.

    3. If either was issued and the penalty has not been assessed, coordinate with the FTD Penalty Function.

  4. If neither CP 207, CP 207L notice, nor Letter 313C was issued, follow the instructions below.

    1. The CP 207 or CP 207L notice history may drop from the Taxpayer Information File (TIF) before the CP 207 or CP 207L notice reply is received and processed, or before the average penalty is systemically assessed 15 cycles later.

    2. Therefore, the CP 207 or CP 207L notice information may not always be present in the notice history section for use in determining whether the systemic averaged penalty assessment is outstanding.

    3. The best way to identify if a CP 207 or CP 207L was issued is to check the tax module for a Schedule Indicator Code (SIC) of either "1" or "7" . A SIC of "1" or "7" indicates that Master File computed the penalty by averaging the tax and generated a CP 207 or CP 207L notice (Proposed Averaged Penalty) to the taxpayer in the cycle of TC 150.

      Exception:

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

  5. Since taxpayers file their returns under "penalty of perjury" , taxpayer requests to revise or add return information must be resolved appropriately. Oral requests to change the dates or liability amounts on the ROFTL schedule are NOT accepted.

  6. Upon receipt of a legible, complete (no negative amounts) liability schedule:

    1. Recompute the penalty using the new ROFTL information, unless the tax liability is within the de minimis amount to deposit.

    2. For de minimis amounts, see IRM 20.1.4.6, De Minimis Exception to Deposit Requirements. For ROFTL info, see IRM 20.1.4.1.2, Criteria for Reporting Tax and ROFTL Information.

  7. If the revised ROFTL schedule is not legible, not complete, or has negative amounts, attempt to resolve the discrepancy by telephone contact with the taxpayer or authorized representative.

  8. If the information in the new valid ROFTL schedule requires a penalty recalculation, input the penalty update and provide the penalty computation to the taxpayer. See IRM 20.1.4.25, Taxpayer Contact Correspondence.

    1. If the taxpayer submits changes to ROFTL schedule, accept the information and make the appropriate FTD penalty adjustment. A signature is required only if the requested action will change the total tax liability.

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 20.1.4.23.2 (5), Command Code FTDPN, for instructions on recalculating using the FIFO method. See IRM 20.1.4.3, Restrictions on Assessments.

  9. If the recomputed penalty does not require a penalty adjustment, then input TC 180 for $.00 with the appropriate PRC (even if there was no previous posted TC 18X) to indicate that no penalty was due or charged per the revised ROFTL schedule.

    1. See IRM 20.1.1, Introduction and Penalty Relief, and IRM Exhibit 20.1.1-3, Penalty Reason Code Chart.

    2. Remember to attach the penalty computation to your adjustment document.

20.1.4.21.3  (01-06-2012)
Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase)

  1. When the taxpayer files an amended return and record of federal tax liability (ROFTL) schedule that results in a (TC 290 or TC 300) non-interest free tax adjustment, recompute and update the penalty using the new corrected tax amount (TC 150 plus any TC 291, TC 301, TC 290, TC 300 tax adjustments) and new corrected ROFTL schedule. Assumption: amended return is correct and the new total ROFTL amount matches ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the new corrected tax amount (TC 150 plus any TC 291, TC 301, TC 290, TC 300 tax adjustments).

  2. If the taxpayer files a supplemental (additional) return and ROFTL schedule that results in a (TC 290 or TC 300) non-interest free tax increase, recompute and update the penalty using the new corrected tax amount (TC 150 plus any TC 291, TC 301, TC 290, TC 300 tax adjustments). CAUTION: Do not use any TC 298/308 tax adjustment amounts to figure the new corrected tax amount. Combine the liability amounts from the new supplemental ROFTL schedule with the original TC 150 ROFTL schedule. Assumption: supplemental return is correct and the new total ROFTL amount matches ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ the new corrected tax amount (TC 150 plus any TC 291, TC 301, TC 290, TC 300 tax adjustments).

  3. The Form 941 de minimis exception for depositing is based on tax amounts of less than $2,500 in either the current quarter and in the prior quarter. Therefore, the Form 941 de minimis exception for depositing must be refigured for both the tax adjustment quarter and the following quarter. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, (for no ROFTL required) and IRM 20.1.4.1.2, Criteria for Reporting Tax and ROFTL Information.

  4. If the recalculation of an FTD penalty on a related tax adjustment (TC 290/291, 300/301) results in NO penalty adjustment, then input TC 180 $.00 with the tax adjustment input to denote a penalty no change.

  5. See IRM 20.1.4.23 (10) , Manual Adjustments, on the use of Reason Codes. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 20.1.4.23.2 (5), Command Code FTDPN, for instructions on recalculating using the FIFO method. See IRM 20.1.4.3 , Restrictions on Assessments.

  6. If the recalculation of the FTD penalty results in a change to the FTD penalty, provide the penalty computation to the taxpayer. See IRM 20.1.4.25, Taxpayer Contact Correspondence.

  7. The adjustment will generate a new first notice (CP 210/220).

  8. The account will then be subject to normal procedures for the possible assessment of the additional 5 percent 4th tier amount.

  9. DO NOT assess the FTD penalty if there is a reasonable cause indicator on the account, as follows:

    • Computer Condition Code (CCC) "J" in the return record, or

    • Transaction Code (TC) 181/180 with RC 062.

  10. Non-interest free tax increase and revised record of federal tax liability (ROFTL) schedule not provided or is invalid.

    1. Attempt to resolve the ROFTL discrepancy by telephone contact with the taxpayer or authorized representative. See IRM 20.1.4.25.1, Telephone Contact.

    2. If the discrepancy in the ROFTL cannot be resolved by telephone contact, then correspond with the taxpayer using Letter 313C, FTD Penalty Proposal. See IRM 20.1.4.16, Issuing Averaged FTD Penalty Proposals—Letter 313C.

    3. If a new ROFTL schedule is received, determine whether a failure to deposit penalty applies. See IRM 20.1.4.16.1, Replies to 313C Letters.

    4. If a new ROFTL schedule is not received and the tax is being increased, use averaging on the new corrected tax amount (TC 150 plus any TC 291, TC 301, TC 290, TC 300 tax adjustments) and assess the penalty using the applicable PCC (for an averaged penalty). See IRM 20.1.4.16.2, No Response Cases.

    5. Whenever the penalty is assessed with an averaging PCC, a blank ROFTL schedule and Notice 746 are included with the adjustment notice.

    6. See IRM 20.1.4.14.3, Penalty Computation Codes (PCC), for a list of the valid PCC codes.

  11. Partial tax decrease and revised ROFTL schedule not provided or is invalid.

    If And Then ...
    the tax is being partially decreased... no penalty is present no penalty recalculation or penalty adjustment is necessary.
    the tax is being partially decreased on a module where the FTD penalty was previously charged on the higher tax... the partial tax decrease would not result in the module having a penalty higher than 10 percent of the net decreased tax liability. advise the taxpayer to submit a revised ROFTL schedule for a possible reduction of the FTD Penalty.
    the partial tax decrease (with no penalty decrease) would result in the module having a penalty higher than 10 percent of the net tax liability. input a partial penalty abatement to adjust the net penalty amount equal to 10 percent of the net tax liability.
    the partial tax decrease (with no penalty decrease) would result in the module having a penalty higher than 10 percent of the net tax liability and higher than 5 percent (4th tier assessment) of any remaining unpaid net tax liability. input a combined partial penalty abatement to reduce the penalty amount to equal:
    1. 10 percent of the net tax liability, and

    2. 5 percent (4th tier assessment) of the net tax liability not paid by the 10th day following the first balance due notice.

  12. The above instructions apply also to amended returns received from IRC 6020(b) or jeopardy assessments (Doc. Code 51).

20.1.4.21.4  (01-06-2012)
Form 941-C Supporting Statement To Correct Information (Errors Discovered on or before December 31, 2008)

  1. Form 941-C, Supporting Statement to Correct information, is obsolete and replaced with the new "X" forms (Form 941-X, Form 943-X, Form 944-X, Form 945-X, and Form CT-1X) for errors ascertained on or after January 1, 2009.

20.1.4.21.5  (01-06-2012)
Adjusted Returns (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X)

  1. Beginning January 1, 2009, the new "X" form adjusted returns (Form 941-X, Form 943-X, Form 944-X,Form 945-X, and CT-1X) replaced Form 941-C and should be filed with respect to errors discovered after December 31, 2008 per Treas. Reg. 31.6205-1. Unlike Form 941-C, the new "X" forms will not be filed as an attachment to a current return and will not affect the liability reported on the current return.

  2. Treas. Reg. 31.6302-1(c)(7) (updated per TD 9405) provides an exception to the monthly and semi-weekly deposit rules for employers submitting a timely filed (timeliness determined by the ascertain date when provided) adjusted return.

    1. An employer filing an adjusted return is not subject to the monthly and semi-weekly deposit rules on the new adjusted tax amount if the amount reported on the adjusted return qualifies as interest free adjustment (TC 298/308).

    2. The timeliness of deposit on an interest free adjustment is determined strictly on the amount of the interest free TC 298/308 adjustment. Therefore, an amended record of federal tax liability (ROFTL) schedule for the new total tax is not applicable on an interest free (TC 298/308) adjustment.

    3. If the amount of TC 298/308 interest free adjustment is paid by the received date of the adjusted return ≡ ≡ ≡ ≡ ≡ , the amount timely paid will be deemed to have been timely deposited by the employer. The payment for the interest free adjustment (TC 298/308) adjustment may be made by a check or money order with the adjusted return, by electronic funds transfer, or by other methods of payment as provided by the instructions relating to the adjusted return.

  3. The decision to allow an interest free (TC 298/308), versus a non-interest free (TC 290/300) adjustment is based on the timeliness of the adjusted return. If an adjusted return is timely filed and the amount paid by the time the adjusted return is filed, the adjustment will be interest-free (TC298/308). If an adjusted return is timely filed but the amount of the TC 298/300 is not paid by the time the adjusted return is filed, interest runs on the amount due from the date the adjusted return is filed until the date of payment.

    Example:

    The taxpayer submitted Form 941-X reporting a tax increase for the first quarter 2009. He indicated the error was discovered on May 5, 2009, (during the second quarter of 2009). His Form 941-X and his payment of tax was received June 22, 2009. Since the additional tax was reported by the second quarter due date of July 31, 2009, the entire additional tax is assessed with TC 298 and the received date of the Form 941-X (MMDDYYYY) is entered in the Interest Computation Date (INT-CMPTN-DT) field.

    Reminder:

    The amount of the interest free tax adjustment (TC 298/308) is considered timely deposited if payment is received by the received date of a timely filed Form 941-X≡ ≡ ≡ ≡ ≡ ≡ ≡ . In the example above ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the received date of the Form 941-X.

    1. If the underpayment is reported timely (by the due date of the return for the period in which the error was "discovered" ), but the amount of the TC298/308 is not paid by the time of filing ≡ ≡ ≡ ≡ ≡ ≡ ≡ , then the amount of the unpaid tax is subject to a 10 percent FTD penalty.

      Example:

      The same underpayment occurs as in the example above. The Form 941-X was filed on June 22, 2009, reporting a tax increase of $5,000, but the additional tax was not paid by the time the Form 941-X was filed. The underpayment of tax is subject to a 10 percent FTD penalty since payment for the adjusted tax amount was not remitted by the received date of the adjusted return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . Input (on the same adjustment) a primary TC 298 for $5,000.00 and a secondary TC 180 for $500.00 and a PCC 003. Enter the received date of Form 941-X in the INT-CMPTN-DT field.

    2. If an underpayment of tax is not reported on an adjusted return by the due date of the return for the period in which the error was ascertained, a corrected ROFTL schedule totaling the new corrected tax is required to check the timeliness of deposits on the new corrected tax (total of TC 150 plus any TC 291/301, 290/300 tax adjustments). See IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).

      Example:

      The same underpayment occurs as in the above example but the underpayment is not reported and paid until August 14, 2009. Because it was not reported by the due date of the return period (second quarter) in which the error was discovered, July 31, 2009, the entire additional tax is assessed with TC 290 on the first quarter tax module. A corrected ROFTL schedule totaling the new corrected tax is required to check the timeliness of deposits on the new corrected tax (total of TC 150 plus any TC 291/301, 290/300 tax adjustments). See IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).

  4. TC 291/301 (tax decrease) is input: Follow instructions in IRM 20.1.4.21.3 (11), Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase) and in IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X).

  5. TC 290/300 (non-interest free) tax adjustment is input: A corrected ROFTL schedule is required to figure the timeliness of deposits on the new corrected total tax (total of TC 150 plus any TC 291, 301, 290, 300 tax adjustments). Follow instructions in IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).

  6. TC 298/308 Tax Amount Timely Paid: If full payment for TC 298/308 tax amount is received by the date of a timely adjusted return ≡ ≡ ≡ ≡ ≡ ≡ , the adjusted tax will be deemed to have been timely deposited by the employer. Input a secondary TC 180 $.00 on the same adjustment as the primary TC 298 using a fourth position PRC 010.

  7. TC 298/308 Tax Amount Unpaid or Paid Late: If full payment for TC 298 tax amount is not received by the date of a timely adjusted return ≡ ≡ ≡ ≡ ≡ ≡ ≡ , figure a 10 percent FTD penalty on the amount not remitted timely. Use PCC 003 with the TC 180 penalty assessment.

    Caution:

    If the 10 percent FTD penalty figured on TC 298/308 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on the same adjustment as the primary TC 298/308 using the fourth position ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ For instructions on the use of PRC 021, see IRM 20.1.4.3, Restrictions on Assessments.

  8. Automated suspense process for monitoring the possible 15 percent 4th tier penalty rate: See the procedures in IRM 20.1.4.20.2, Processing CP 294 Notice-TC 290/298 Blocking Series 20, that automated the suspense process for monitoring the possible 15 percent 4th tier penalty rate.

20.1.4.21.5.1  (04-20-2010)
Amended ROFTL (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X)

  1. An amended record of federal tax liability (ROFTL) schedule is generally not required with an adjusted return (Forms 941–X, 943–X, 944–X, 945–X, or CT-1X), unless one of the following conditions are met:

    1. An amended ROFTL schedule is required to correct the prior ROFTL schedule that was invalid, missing or incorrect and must not include TC 298/308 tax increase in the total ROFTL amount.

      Note:

      The recomputation may result in the reduction or elimination of a previous FTD penalty charged on an invalid, missing or incorrect ROFTL schedule.

    2. An amended ROFTL schedule is required on a tax decrease if a prior FTD penalty was assessed on the previous higher tax amount. The ROFTL total should reflect the new revised lower tax amount (including TC 291/301 tax decrease). See IRM 20.1.4.21.3 (11), Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).

      Note:

      The recomputation may result in the reduction or elimination of a penalty charged on the previous higher tax amount.

    3. An adjusted return received late (after the due date of the tax period the error was discovered) does not qualify for an interest free adjustment and requires a corrected ROFTL schedule to figure the timeliness of deposits. The new corrected ROFTL schedule should reflect the new total tax (total of TC 150 plus any TC 291/301, 290/300 tax adjustments), less any TC 298/308 interest-free adjustments. Follow instructions in IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).

  2. If the recalculation of the FTD penalty results in a change to the FTD penalty, provide the penalty computation to the taxpayer. See IRM 20.1.4.25, Taxpayer Contact Correspondence.

20.1.4.21.6  (01-06-2012)
CAWR and FUTA

  1. Combined annual wage reporting (CAWR) and federal unemployment tax adjustment (FUTA) cases are internally initiated adjustment cases.

  2. See IRM 4.19.4, CAWR Reconciliation Balancing and IRM 4.19.5, Certification of State FUTA Credits.

20.1.4.21.6.1  (01-06-2012)
Computation of the FTD Penalty (CAWR and FUTA Notices)

  1. If transaction code (TC) 290/300 is input on a CAWR adjustment, then assess a 10 percent FTD penalty (TC 180) on the amount of the tax assessment using PCC 018 with TC 180 penalty assessment.

  2. If a TC 298/300 is input on a CAWR adjustment, then payment for the amount of the tax increase must be received on or before the interest computation date of the TC 298/308 ≡ ≡ ≡ ≡ ≡ ≡ ≡ pursuant to Treas. Reg. 31.6302-1(c)(7).

  3. If full payment for TC 298 tax amount is not received by the interest computation date of TC 298/300 adjustment ≡ ≡ ≡ ≡ ≡ , figure a 10 percent FTD penalty on the amount not remitted timely. Input a secondary TC 180 on the same adjustment as the primary TC 298/308 using the first position PCC 018.

    Caution:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ For instructions on the use of PRC 021, see IRM 20.1.4.3, Restrictions on Assessments.

  4. If full payment for TC 298/308 tax amount is received by the date of a timely adjusted return ≡ ≡ ≡ ≡ ≡ ≡ ≡ , the payment is considered to satisfy the employer’s deposit obligations with respect to the adjustment. Input a secondary TC 180 $.00 on the same adjustment as the primary TC 298 using the first position PCC 018.

  5. If a taxpayer responds to a FUTA notice and agrees with the increase to his/her taxable amount, or does not respond and we increase the taxable amount based on our information, assess the tax increase as well as the FTD penalty at 10 percent of the TC 290/300 amount using PCC 018 and normal penalty considerations and adjustment procedures.

  6. Because the CAWR assessment results from reconciliations with Social Security Administration (SSA) and the FUTA assessments from information received from individual states, a revised record of federal tax liability (ROFTL) schedule is not applicable. Even if submitted, the revised ROFTL schedule would have no penalty impact.

  7. When reversing a CAWR/FUTA assessment in part or in full the FTD penalty charged against the CAWR/FUTA assessment must be addressed. Input a TC 181 for 10 percent of the TC 291/301 with PRC 010. The TC 181 cannot exceed the amount of previously assessed TC 18X.

  8. The account will then be subject to normal procedures for monitoring the possible assessment of the additional 5 percent 4th tier amount.

    1. At the expiration of the five cycles, if the taxpayer has not paid the full amount of the tax assessed within 10 days of the 23C date of the TC 290/300/298/308, the 4th tier of the FTD penalty applies. Assess (TC 180) an amount equal to 5 percent of the unpaid tax (the amount of the tax increase) and close the case.

    2. If the additional 5-percent 4th tier FTD penalty was assessed on a no reply or agreed CAWR/FUTA assessment and that tax increase is later reversed, the total FTD penalty (15-percent) related to the tax assessment would be abated.

20.1.4.22  (01-06-2012)
Master File Assessments and Recomputations

  1. Initial Systemic FTD Penalty Calculation in TC 150 Return Posting Cycle —The Record of Tax Liability (ROFTL) information is processed as part of TC 150 return and uploads to Master File in the cycle of the return (TC 150) posting and the penalty is systemically calculated if the ROFTL schedule is valid.

  2. Credit Transfers on a Module not Restricted (no TC 180/181) —After the systemic FTD penalty is initially calculated, Master File will recalculate the FTD penalty when credits are transferred in or out of an unrestricted (no TC 180/181) module, using the original (TC 150) ROFTL information and updated payment information.

    Caution:

    Therefore, when credits are transferred out (updated) and a partial tax decrease (TC 291/301) is processed (even if there was no FTD penalty charged on the full TC 150 tax amount) the penalty must be manually recalculated and the module restricted to stop Master File from systemically recalculating the penalty using the updated payment information and incorrect original (higher) ROFTL amounts.

  3. Credit Transfers on a Restricted Module (TC 180/181) — When transferring credits in or out of a module that is restricted (TC 180/181), the penalty is not systemically recalculated by Master File because neither the original nor corrected ROFTL information is accessible by Master File.

    Caution:

    The corrected ROFTL schedule must be secured and the penalty manually recalculated in situations where the credit transfer could potentially impact the penalty. If it is determined that the penalty must be recalculated, check the Correspondence Imaging System (CIS) to obtain the corrected ROFTL information from the prior case if the employee has access to CIS. If the corrected ROFTL information cannot be obtained from CIS, then:

    1. Attempt to secure a faxed copy of the corrected ROFTL schedule from the taxpayer if possible, or

    2. Order the DLN of the source document that caused the restriction (TC 180/181) to obtain the corrected ROFTL information.

  4. Subsequent Amended/Supplemental Return or Revised ROFTL information— Master File is ONLY able to compute the FTD penalty on the initial ROFTL information supplied with the original return. Therefore, any adjustment to the tax when an amended/supplemental return is filed or when a revised ROFTL schedule is submitted requires a manual recalculation and update of the penalty. Assumption: The revised tax return and/or ROFTL schedule are correct and the revised tax is not within the de minimis exception to deposit. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements. For ROFTL info, see IRM 20.1.4.1.2, Criteria for Reporting Tax and ROFTL Information.

  5. Use the information in the new ROFTL schedule to recalculate the penalty when warranted.

  6. If the information in the new ROFTL schedule is used to recalculate the penalty, input the penalty update (along with TC 29X/30X) using the guidelines, as follows:

    1. If the recalculation requires a penalty adjustment, then input the appropriate TC 180/181 as required, to assess or abate the penalty.

    2. If the recalculation requires NO penalty adjustment, then input the required TC 180 $.00 to denote a penalty no change per the penalty recalculation.

    3. See IRM 20.1.4.23 (10), Manual Adjustments, on the use of Reason Codes.

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

    Note:

    For an amended ROFTL schedule provided with an adjusted return (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X), see IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X).

20.1.4.23  (01-06-2012)
Manual Adjustments

  1. Before adjusting or abating any FTD penalty, you must check for conditions that will prohibit you from taking action on the account.

    Example:

    These conditions include, but are not limited to:

    1. The case has an open control base to another Campus or Area Office.

    2. The case has a Large Case (LCI) or Coordinated Industry Case (CIC) indicator, or certain freeze conditions.

    3. The control history indicates recent taxpayer contact, pending transactions, or penalty waiver considerations by another area.

      Caution:

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

  2. Use BMFOLI to determine the account location. If the account is controlled to another area, you must coordinate with that area before adjusting or abating the penalty.

  3. Although computer software is available for calculating penalties, you must still know how the penalty is computed. See the Most Recent Payment Allocation Method in Chapter 7 of Part 21 of the Job Aids located on SERP. This Job Aid will provide guidance on the method of applying deposits per Rev. Proc. 2001-58.

  4. Command code BMFOL can be used to research FTD liability data before manual computation of FTD penalties. Several screens will be displayed based on the input definer code. See IRM 2.3.59, Command Codes BMFOL and BMFOR, for a listing of screen displays.

  5. Check the Penalty Computation Codes (PCC) and Schedule Indicator Codes (SIC) on the taxpayer’s account. This may provide information on how the penalty was previously computed. See IRM 20.1.4.14.3, Penalty Computation Codes (PCC), for a list of the valid PCC codes and IRM Exhibit 20.1.4-11 , Schedule Indicator Code (SIC) Definitions.

  6. Use CC FTDPN to both help determine how the penalty was computed and to determine the amount of adjusted penalty. See IRM 20.1.4.23.2 (5), Command Code FTDPN, for instructions on recalculating using the FIFO (first in, first out) method. Form 6844, FTD Computation Worksheet, is available to assist in the manual computation of the penalty if IDRS is not available. If needed, request the penalty assessment document to determine the previous computation procedure.

  7. Always attach a PIFTD/FTDPN print or manual penalty computation behind the IDRS source document on non-CIS cases as part of the supporting information.

  8. When working Correspondence Imaging System (CIS) cases, always capture the FTDPN computation screen on the CIS system.

  9. Use the information in the new record of federal tax liability (ROFTL) schedule to recalculate the penalty as follows:

    1. If the penalty recalculation results in a penalty adjustment, then input the appropriate TC 180/181 as required to assess or abate the penalty and provide the penalty computation to the taxpayer. See IRM 20.1.4.25, Taxpayer Contact Correspondence.

    2. If the penalty recalculation results in NO penalty adjustment, then input the required TC 180 $.00 to denote a penalty no change per the penalty recalculation.

  10. Penalty Reason Codes (PRC) and Penalty Computation Codes (PCC) must be used to explain the reason for the penalty update and are required with the input of a TC 18X.

    Exception:

    CP 194 Notices (Possible FTD Penalty) — Generally a penalty reason code is not required to explain the reason for a (TC 180 $.00) penalty since the penalty computation was figured on a valid ROFTL schedule provided with the original return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ see IRM 20.1.4.3, Restrictions on Assessments, for instructions on the use of PRC 021 as it relates to≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . See IRM 20.1.4.15, CP 194 Notices (Possible FTD Penalty).

    1. Use a first position PCC to explain the reason for a (TC 180) penalty assessment. See IRM 20.1.4.14.3, Penalty Computation Codes (PCC), for a list of the valid PCC codes.

    2. Use a fourth position PRC to explain the reason for a (TC 180 $.00) penalty "no change." See IRM 20.1.1–3, Introduction and Penalty Relief, Penalty Reason Code Chart.

      Caution:

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

    3. Use a fourth position PRC to explain the reason for a (TC 181) penalty abatement. See IRM 20.1.1, Introduction and Penalty Relief and IRM Exhibit 20.1.1-3, Penalty Reason Code Chart.

      Caution:

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

  11. It is important to reconsider the FTD penalty whenever adjusting the tax amount. How does the change to tax affect the ROFTL schedule?

    1. It is not necessary to input a manual TC 181 when reducing (TC 291/301) the net tax to zero, as long as the computer generated (TC186) FTD penalty has not been restricted (TC180/181). If no FTD penalty restriction is present (and a manual TC 181 has not been included with TC 291/301 tax abatement), then Master File will generate a systemic TC 187 to reduce the FTD penalty to zero.

    2. The presence of a manual TC 180/181 on the module will prevent, even a total tax decrease from posting. Therefore, when a tax adjustment is input without the required secondary TC 18X, the adjustment will not post. Unpostable Code 336, Reason Code 2, identifies these situations. These unpostables will be returned to the originator for reinput of the tax adjustment along with the required TC 18X used to address the penalty.

20.1.4.23.1  (04-20-2010)
Form 6844, FTD Computation Worksheet

  1. The Form 6844, FTD Computation Worksheet, may be used as an aid to manually compute the FTD penalty. For further assistance, see the job aid on the Most Recent Payment Allocation Method of computing the FTD penalty located in Chapter 7 of IRM 21 Job Aids.

20.1.4.23.2  (01-06-2012)
Command Code FTDPN

  1. The command code FTDPN may be used on IDRS to compute the FTD penalty and will provide the taxpayer with an explanation of how the FTD penalty was computed.

  2. IDRS CC FTDPN can only be used on Form 940, Form 941, Form 943, Form 944, Form 945, Form 1042, and Form CT-1 accounts to compute the FTD penalty.

  3. CC FTDPN can compute the penalty using the averaging method (if the liability breakdown is invalid), or by using the actual liability breakdown when valid.

  4. If FTDPN displays a penalty "MISMATCH" with Master File, the penalty must be validated for accuracy.

  5. When recalculating the FTD penalty using FTDPN you must recalculate the FTD penalty using the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ "" ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "" ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. See IRM Exhibit 20.1.4-9, Instructions for Command Code FTDPN, for a summary of CC FTDPN capabilities with its various definers. Refer to IRM 2.3, IDRS Terminal Responses, for complete information on IDRS command codes.

20.1.4.23.2.1  (04-20-2010)
CP 568 FTD Penalty Notice

  1. CP 568 PINEX notice provides the taxpayer with written information involving inquiries on FTD issues and gives an explanation of the taxpayer’s account using both posted and pending transactions reflected on the taxpayer’s account.

  2. In order for a computation to be provided, the specific tax module must be on IDRS. If the module is not on IDRS, the account will have to be established. The CP 568 notice is generated from CC FTDPN.

  3. FTDPN provides the option to issue a CP 568 notice at the end of each computation. It can consist of just text or be accompanied by a full or partial account transcript.

  4. You can review the CP 568 notice on-line and make appropriate changes to the letter before issuance to the taxpayer. These notices must be 100 percent reviewed prior to issuance in order to prevent bad notices due to systemic or tax examiner error.

  5. See IRM 2.3.28, Command Code FTDPN, for more information.

20.1.4.24  (01-06-2012)
Deposit Problem Identification

  1. A taxpayer will receive an FTD penalty even when the deposit is timely made to an authorized depositary (applies to paper and electronic funds transfer (EFT) deposit systems), if the depositary delays in forwarding the deposit to the U.S. Treasury. When it is determined that the delay occurred after being received by the authorized depositary the taxpayer is relieved of the portion of the penalty due to this delay.

  2. See IRM 20.1.4.24.2, Misdated Deposits, if the authorized depositary (applies to paper and EFT deposit systems) mishandled the deposit, or see IRM 20.1.4.24.1, Treasury Financial Agent Mishandling, if the Treasury Financial Agent (TFA) mishandled the deposit.

  3. FTD deposit coupons are not accepted after December 31, 2010. Previously, employers making deposits (using the coupon method) had to make their required deposits at an authorized depositary.

20.1.4.24.1  (04-20-2010)
Treasury Financial Agent Mishandling

  1. If a taxpayer made a timely deposit by an electronic request, or prior to 1-1-2011 via a coupon to an authorized depositary and the Treasury Financial Agent (TFA) subsequently delayed transmitting the deposit to the U.S. Treasury, the taxpayer’s account may be charged a failure to deposit (FTD) penalty for a late deposit. The taxpayer can be relieved of the portion of the penalty due to this delay, if:

    1. It can be determined that the delay occurred after the timely payment was received by the bank and timely transmitted to the TFA, and

    2. The TFA has an incident report and/or takes responsibility.

  2. DO NOT initiate a credit transfer to change the date of the misdated deposit. In the case of a TFA error or delay, take the following actions:

    1. If the return has NOT posted, refer the case to the Penalty Prevention and Resolution Group (PPRG) in Ogden’s Large Corp/Technical Team 104 – Fax 801-620-4368 – for determination that the TFA has provided information to stop the FTD penalty from being assessed (pre-return posting and TC 186 FTD penalty). We are only using TC 971 A/C 309, in this instance, and A/C 309 is restricted to the PPRG. See IRM 20.1.4.24.2, Misdated Deposits for TC 971 A/C 30X input.

    2. If the return has posted, recompute the FTD penalty using CC FTDPN by overlaying the date on the deposit screen with the intended payment date (IPD) to determine what (if any) penalty would have been assessed if the deposit had not been delayed. Input TC181 with PRC-032 for the difference. This is general penalty relief.

      Reminder:

      It is not necessary to obtain or fax Form 13287, Bank Payment Problem Identification, to the Treasury Tax and Loan (TT&L) Coordinator in the instance of a TFA error.


    3. The Internal Revenue Code does not authorize the IRS to charge a penalty against payroll processors. Consequently, penalty relief for deposit delays by payroll processors is not available. This is considered an issue between payroll processors and the taxpayer (his/her client) according to the contract liability clause in his/her service agreement.

    4. Due to Treasury Regulations, the date of a deposit/payment CANNOT be changed, unless it is an IRS error.

20.1.4.24.2  (01-06-2012)
Misdated Deposits

  1. Form 8109, Federal Tax Deposit Coupon, is not accepted after December 31, 2010.

  2. For ACH CREDITS (EFTPS), secure and review the statement prepared by the taxpayer's financial institution (bank) indicating:

    1. The date the taxpayer notified the bank to make the deposit,

    2. That sufficient funds were present to satisfy the deposit,

    3. The amount and date of the transfer, and

    4. That the payee was identified as the U.S. Government.

      Note:

      The bank should provide a transaction trace number for the deposit. The IRS uses this (EFT) trace number to research the payment.

  3. For ACH DEBITS (EFTPS), secure and review the following:

    1. The ACH Debit acknowledgment number from the EFT financial agent used to trace and establish the date and time that the Financial Agent was asked to initiate a debit transaction. The number is given to the taxpayer at the conclusion of the taxpayer's phone call or successful PC transmission.

    2. A copy of the taxpayer's bank statement or other bank records that shows a withdrawal from an account that had a sufficient level of funds to cover the taxpayer's deposit and that the payment had not been reversed or returned.

  4. When a taxpayer makes a timely deposit by electronic request or prior to 01-01 2011 via a coupon to an authorized depositary, and the bank delays transmitting the deposit to the U.S. Treasury, the taxpayer’s account may be charged a failure to deposit (FTD) penalty for a late deposit. The taxpayer can be relieved of the portion of the penalty due to this delay, if:

    1. It can be determined that the delay occurred after the bank received the payment, and

    2. The bank takes responsibility for the delay.

  5. DO NOT initiate a credit transfer to change the date of the misdated deposit. In the case of a bank error or delay, the Federal Reserve Board (FRB) assesses a "cost of funds" (loss of interest) penalty and debits the bank’s Treasury Tax and Loan (TT&L) account. Due to inconsistent backup provided by the IRS, banks were challenging the penalty and the FRB would reverse the disputed charges. Form 13287, Bank Payment Problem Identification , was developed to provide sufficient backup.

  6. When a taxpayer claims bank error or delay, secure a properly completed Form 13287 signed by a bank official. The following information should be listed on the form:

    1. The date the taxpayer notified the institution to make the deposit,

    2. That sufficient funds were present to satisfy the deposit, and

    3. The amount and date of the transfer, identifying the U.S. Government as payee, (the taxpayer’s bank receipt is NOT sufficient).

  7. If a letter is received without Form 13287 attached, fax or mail Form 13287 with bank instructions to the taxpayer (or to the bank, if a contact person has been provided), then allow 30 days from the date of the request for a reply.

    Note:

    The taxpayer can also obtain Form 13287 and instructions at http://www.irs.gov.

  8. If the form is not returned or properly completed or the bank does not take responsibility, and the taxpayer's return has posted, take the following actions:

    1. Inform the taxpayer that since the bank has not accepted responsibility by completing and signing the Form 13287, the only way the FTD penalty can be reduced or eliminated, is by the taxpayer establishing reasonable cause.

    2. Request additional information from the taxpayer. If the taxpayer cannot submit any information to establish reasonable cause, deny the claim. Use the Reasonable Cause Assistant (RCA), and associate the information provided as the source document. Issue Letter 852C through RCA. If RCA is not available, see IRM 20.1.1, Introduction and Penalty Relief, for instructions on penalty relief denial.

  9. If Form 13287 is not returned or properly completed, and the taxpayer's return has NOT posted, inform the taxpayer that s/he may receive an FTD penalty after the return posts. If s/he cannot provide additional information and establish reasonable cause, s/he will be liable for the penalty payment.

  10. If a completed Form 13287 is received, the return has posted, the TC 186 is not restricted and the original, unreversed TC 6X0 (with no other deposits with the same date) is on the account, use Command Code (CC) REQ77 on IDRS and input the corrected (intended payment) date. Refer to IRM 2.4.19, Command Codes REQ77, FRM77 and FRM7A, for information on TC 971 input.

  11. The following fields are required input on CC FRM77:

    1. ABA-NUM> Input the nine-digit American Banking Association (ABA) Number. If deposit is by EFTPS payment, the ABA number will be located on Form 13287, Bank Payment Problem Identification, which is required to be collected and associated with every TC 971 Action Code (A/C) 303–309.

    2. TC> (Transaction Code)- Input "971" .

    3. TRANS-DT> Input the date of the original 6X0 transaction.

    4. REVERSAL-DLN> Input the 14-digit DLN of the original transaction in the field.

    5. SECONDARY-DT> Input the Intended Payment Date (IPD) that the payment should have settled on the account. Use the date on the receipt or the date on the back of the canceled check. (If both a bank receipt and canceled check are provided, use the earlier date.)

    6. TC971/151-CD> Input one of the following 971 Action Codes:

      Action Code Action Code Definition
      301 *Bank stamped FTD coupon with a date later than the date it processed on the taxpayer's check (prior to 01-01- 2011).
      302 *Bank stamped FTD coupon "other" (prior to 01-01- 2011).
      303 EFTPS untimely processing of transaction.
      304 EFTPS erroneous processing of transaction.
      305 EFTPS "other" .
      306 FTA untimely processing of transaction.
      307 FTA erroneous processing of transaction.
      308 Bulk and Batch Filers (Restricted to the Penalty Prevention and Resolution Group)
      309 Bulk and Batch Filers (Restricted to the Penalty Prevention and Resolution Group)
      *Note: These are FTD or Mag Tape deposits. An ABA number will need to be input.

    7. NSD> Name of Bank taking responsibility (and PPRG case number, if applicable)

  12. TC 971 A/C 30X only systemically reverses the FTD penalty on Form 941 (MFT 01) with a deposit delay on a single, unreversed (non-credit transferred) deposit. TC 971 A/C 30X should be input for an audit trail, but does not systemically reverse the FTD penalty if the penalty is restricted, or on any other form/MFT (other than 01/ Form 941). Master File cannot always properly and systemically compute the FTD penalty using an IPD if there are deposits with the same date/DLN. In addition, a TC 971, A/C 30X will go unpostable if the delayed deposit has been reversed or the transaction code has been changed (by a credit transfer).

  13. If the taxpayer’s account is restricted (TC 180/181) from Master File FTD penalty recomputation, or is other than MFT 01 (Form 941), manually adjust the FTD penalty. Using CC FTDPN, overlay the date on the deposit screen with the IPD to determine what the penalty would have been if the deposit had not been delayed. Input TC 181, PRC 014 for the difference. Input TC 971 action code 30X for an audit trail.

  14. If the TC 6X0 has been reversed or transferred in, follow (13) above, but do NOT input TC 971 (it will go unpostable). Prepare Form 8646, Checklist to Identify Delays in Processing Federal Tax Deposits (FTDs), instead and fax it with the completed Form 13287 to:

    1. Interest Assessment Project, Attn: Asst Mgr TT&L, Fax 866-707-6575, and

    2. Fax the case copy to the Penalty Prevention and Resolution Group in Ogden’s Large Corp / Technical Team 104 – Fax 801-620-4368.

      Note:

      See item (19) below regarding Form 13287.

  15. If the completed Form 13287 is received, the return has NOT posted, and the original, unreversed TC 6X0 is on the account, do the following:

    1. Input TC 971 per item (12) above,

    2. Inform the taxpayer that there should not be a penalty on that deposit when the return posts,

    3. Monitor for the return to post, and

    4. Verify that no penalty was assessed on that deposit.

      Note:

      In the case of a deposit delay on a return other than Form 941 (MFT 01), the FTD penalty has to be recomputed and manually adjusted after the return posts. Use TC 181, PRC 014. Inform the taxpayer.

  16. In some instances, the delayed deposit is received after the return has posted, causing additional penalties and interest. TC 971 will not reverse any failure to pay (FTP) penalty and/or interest assessed. The FTP penalty must be considered separately using penalty relief criteria. Any interest assessed must be charged by law, and is a matter between the taxpayer and the bank.

  17. On occasion, the bank may submit payment for the amount of the FTD penalty due on a taxpayer’s account because of the bank’s mishandling. Since the taxpayer has been relieved of the penalty and the bank will be penalized by FRB (not IRS), follow the instructions in IRM 21.4.4, Refund Inquiries - Manual Refunds, for preparing a manual refund in situations that require the issuance of a refund to a name or address other than the one on Master File (such as refunding the payment back to the bank, not the taxpayer).

  18. When all actions are finished, complete Form 13287 and fax to:

    1. Interest Assessment Project, Attn: Asst Mgr TT&L, Fax 866-707-6575, and

    2. Fax the case copy to the Penalty Prevention and Resolution Group in Ogden’s Large Corp / Technical Team 104 – Fax 801-620-4368.

    3. Do NOT forward Form 13287 until after IDRS input. The customer service Campus that receives the case should work the case.

  19. On Command Code REQ77, Transaction Code (TC) 971, when the intended payment date (IPD)based on information provided by the bank/ taxpayer, is input in the "Secondary DT" field, TC 971 A/C 30X transaction posts to the taxpayer's tax module with the IPD of the cross-referenced deposit.

  20. If the return posts after the IDRS input of TC 971 A/C 30X, and the payment is timely, no penalty will be assessed on that deposit. If TC 971 A/C 30X is input after the FTD penalty assessment, the part of the penalty that pertains to that deposit will be reversed. Master File uses the IPD in its penalty analysis on Form 941 (unless the FTD penalty has been restricted), but the original date and integrity of the deposit date remain.

  21. TC 971 has the same posting cycle as any other IDRS adjustment, so the only way to ensure posting is to monitor any IDRS actions taken. If the return has not posted, TC 971 will post to an account with an A/C 30X, the original date, and the IPD. If the return has posted, the FTD penalty has been assessed, and the deposit was timely, TC 971 will be followed by TC 187 (in the same cycle). If the penalty was restricted, TC 971 must still be input, but the FTD penalty (TC 18X) must be manually reversed. In this instance, TC 971 will be followed by TC 181, PRC 014.

  22. After input of TC 971 A/C 30X on all forms other than Form 941, the FTD penalty has to be recomputed using CC FTDPN, and manually adjusted using TC 181, PRC 014.

  23. To assist in monitoring an account, Document 6209, IRS Processing Codes and Information, gives information pertaining to IDRS on-line input when the posted action will appear on IDRS/Master File, the scheduled 23C date, etc.

    Note:

    See IRM 20.1.4.24.2.1, Campus FTD Processing Error, and IRM 20.1.4.24.4.1, Third Party Mishandling.

20.1.4.24.2.1  (01-06-2012)
Campus FTD Processing Error

  1. Deposit by FTD coupon was discontinued after December 31, 2010.

20.1.4.24.2.2  (01-06-2012)
FTD as Subsequent Payment

  1. Deposit by FTD coupon was discontinued after December 31, 2010.

20.1.4.24.3  (01-06-2012)
Unauthorized Depositaries

  1. Deposit by FTD coupon was discontinued after December 31, 2010. When the taxpayer used an unauthorized depositary, there may be a difference between the taxpayer’s payment date and the FTD transaction date.

20.1.4.24.4  (04-20-2010)
Third Party

  1. Third parties are those individuals or companies who make deposits and/or file returns for clients electronically or by paper. This includes reporting agents (e.g., payroll processors, bulk, and batch processors). They receive approval to work with the IRS by filing a Form 8655, Reporting Agent Authorization. However, this does not allow the third party to act as an "authorized depositary" for the U.S. Treasury.

  2. Whenever a deposit is made late, a penalty is due. If an authorized depositary (bank) or U.S. Government financial agent has caused the delay, the taxpayer may be relieved of the FTD penalty because a penalty is assessed against the bank’s Treasury Tax and Loan (TT&L) account. There are no codified penalties that either IRS, FMS, or FRB can assess against a reporting agent (third party) when he/she has delayed the submission of his/her client’s monies to authorized depositaries (because he/she does not have a TT&L account).

  3. Depending on the agreement the taxpayer (client) has with the third party, the taxpayer may not have copies of canceled checks. Also, the bank statements will show the date the third party withdrew funds from the taxpayer’s account.

20.1.4.24.4.1  (04-20-2010)
Third Party Mishandling

  1. When third parties deposit funds withdrawn from the taxpayer’s account, the funds should then pass through the third party’s account to an authorized depositary. Therefore, the removal of funds from a taxpayer’s account:

    1. Does not in and of itself constitute a tax deposit, and

    2. The taxpayer remains liable for a deposit until funds have been placed in the control of either Treasury or its authorized depositary. This applies to paper and electronic funds transfer (EFT) deposit systems.

  2. To determine whether or not a penalty is appropriate, the following comparisons are necessary: If the date on the bank statement differs from the Advice of Credit (AOC) and FTD dates (TC 650) on the IRS microfiche copies, then the third party timely transferred the funds from the taxpayer’s account, but did not timely transmit them to the authorized depositary as required. Consequently, the third party, not U.S. Treasury, had use of the taxpayer’s funds. Use RCA to determine whether the penalty should be removed.

  3. If the date on the bank statement and the date of the AOC differ, and TC 650 and the date on the AOC also differ, then the bank has further delayed the submission of this money. See IRM 20.1.4.24.2, Misdated Deposits, for instructions on resolving misdated deposits.

20.1.4.25  (01-06-2012)
Taxpayer Contact Correspondence

  1. IRM 21.3.3, Taxpayer Contacts- Incoming and Outgoing Correspondence/Letters, provides guidelines for handling taxpayer correspondence.

  2. Per IRC 6751(a), a notice of penalty adjustment must include the penalty computation.

    Note:

    A penalty computation may be provided per items (3) and (4) below.

  3. The IDRS Correspondex Letter System provides several letters and notices that Campus employees may use to respond to taxpayers regarding FTD penalty issues. They include Letter 1206C, Letter 1446C, and Letter 2782C.

  4. The CP 568 notice, which is accessed through command code FTDPN provides:

    1. A correspondex type notice where the tax examiner can tailor a response to suit the taxpayer’s needs.

    2. A liability specific or a complete return period calculation breakdown of tax liabilities and FTD penalties on request.

    3. A complete summary of the taxpayer’s account in an easy to read format.

    4. A one day turn-around for getting these notices back from printing.

    5. Return of the letter to the initiating unit with a Requestor Action Sheet listing the liabilities and credits and text selections used by the tax examiner to prepare the letter.

    6. See IRM Exhibit 20.1.4-9, Instructions for Command Code FTDPN.

  5. The FTDPN print should be sent as a Correspondex Letter attachment.

20.1.4.25.1  (04-20-2010)
Telephone Contact

  1. Whenever possible, resolve issues by telephone contact with the taxpayer or authorized representative.

    1. Verify that the person to whom you are speaking is authorized to discuss the return and tax period involved. Check Centralized Authorization File (CAF).

    2. Document the applicable case history sheet or Correspondence Imaging System (CIS) case notes with the date and time of conversation and the name of the person contacted.

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

20.1.4.26  (01-06-2012)
FTD Penalty Relief

  1. Penalty relief determinations must be made on a case by case basis.

  2. The Service will not impose, or will abate an FTD penalty when the taxpayer establishes that due to specific penalty relief provisions, the penalty should not be imposed, or the assessed penalty should be abated.

    1. Before assessment, recommend non-assertion of the penalty for deposit amounts when taxpayers provide documentation supporting their position. Reference the appropriate penalty reason code on the closing documentation.

    2. After assessment, abate the portion of the penalty related to the deposit for which the taxpayer has provided documentation supporting its position. Reference the appropriate penalty reason code on the adjustment document.

  3. A taxpayer’s statement regarding the penalty relief criteria must address each specific tax liability amount on which the Internal Revenue Service proposes or computes a penalty for failure to deposit timely. If the dates or explanations do not correspond with the penalized tax liability amounts, the taxpayer has not established a valid reason to waive the penalty.

  4. Contact personnel should address the reason for the failure to deposit timely when securing or examining returns on which the penalty applies. Making this initial determination will prevent the need for subsequent abatements.

  5. Requests for non-assertion or abatement of FTD penalties may require approval by the manager.

  6. See IRM 20.1.1.3.1, Unsigned or Oral Requests for Penalty Relief, for acceptance of oral testimony relating to reasonable cause.

20.1.4.26.1  (01-06-2012)
Reasonable Cause

  1. For general reasonable cause guidelines see IRM 20.1.1, Introduction and Penalty Relief, and IRM Exhibit 20.1.1–3, Penalty Reason Code Chart.

  2. Reasonable cause cannot be considered or denied on an averaged FTD penalty assessment. Therefore, if a reasonable cause request is received for an averaged FTD penalty, a valid record of federal tax liability (ROFTL) schedule must be secured and the penalty recalculated to determine if a penalty is in fact due.

  3. If the recalculation results in a penalty due, then follow the reasonable cause procedures in IRM 20.1.1, Introduction and Penalty Relief.

  4. In the interest of effective tax administration and equity, the non-assertion or abatement of civil penalties based on reasonable cause must be made in a consistent manner and should conform to reasonable cause considerations specified in the Internal Revenue Code, Treasury Regulations, Policy Statements 2–7 and 20–1. See IRM 1.2.12, Policy Statements for Submission Processing Activities, and IRM 1.2.20, Policy Statements for Penalties and Interest Activities.

20.1.4.26.2  (01-06-2012)
Administrative Waivers

  1. In addition to those waivers identified in IRM 20.1.1, Introduction and Penalty Relief, the Internal Revenue Service also recognizes the impact of specific operational changes which may justify either not assessing or abating a penalty for a limited length of time.

  2. An administrative decision was made to extend IRC 6656(c)(2) to allow for a full abatement of the FTD penalty effective for deposits required to be made after January 18, 1999. If a penalty is assessed on the first deposit a taxpayer is required to make after changing the frequency of payroll deposits (e.g., monthly to semi-weekly; semi-weekly to monthly), the taxpayer is entitled to a full abatement of the penalty.

    1. Employees will need to research the account and verify that a change in deposit frequency took place. Check the deposit pattern from the prior year, using command code BMFOL definer K. If the research verifies the change in deposit frequency from the prior year, abate the entire penalty using PRC 043 (Administrative Waiver) in the fourth position of the adjustment document.

    2. If a taxpayer has already been given partial relief of the FTD penalty, based on IRC 6656(c)(2), the remaining penalty on the first quarter can be waived.

    3. Abate the remaining penalty using PRC 043 (Administrative Waiver) in the fourth position of the adjustment document.

  3. Treas. Reg. 31.6302-1T(c)(6) states that an employer 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 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 15 of that year. See IRM 20.1.4.8.1, Extension of Time to Deposit for Form 941 Filers who Filed Form 944 in the Preceding Year. An administrative waiver of the penalty is allowed on late deposits received after the March 15th extended due date to deposit for the first quarter of the year in which a Form 944 filer is returned to filing quarterly using Form 941.

  4. Master File will issue a CP 236 notice on Form 941, Form CT-1, Form 943, Form 944, and Form 945 to remind newly required semi-weekly depositors that NO deposits were received in the first month of the quarter following a change from monthly to a semi-weekly deposit status. Master File will systemically generate TC 971 A/C 329 in the cycle of the notice to indicate that a CP 236 notice was issued. The CP 236 notice history must be checked when considering a reasonable cause request due to late notification of a change in frequency.

    1. If TC 971 A/C 329 is present, then reasonable cause must be denied because CP 236 was issued prior to the requirement for the taxpayer to make its first deposit in the second quarter.

    2. If TC 971 A/C 329 is NOT present, reasonable cause may be granted on the second quarter. Abate the penalty using Reason Code (RC) 062 in the first position and Penalty Reason Code (PRC) 030 in the fourth position of the adjustment document.

      Note:

      A small group of taxpayers will not be required to make their first semi-weekly deposit in January and will receive CP 236 notice reminder due to the conditions set forth in the Master File analysis. If a taxpayer complains that he/she had only one or no payroll in January, explain to them that the notice was not a bill but a reminder.

  5. The Internal Revenue Service has decided that no FTD penalty will be assessed on ANY federal tax deposit due between September 11, 2001 and September 14, 2001, for ALL taxpayers required to make federal tax deposits during this time period.

    Note:

    IDRS has been programmed to disregard these due dates in the FTD penalty calculation routine. When manually adjusting the penalty, use Penalty Reason Code 043 (Administrative Waiver) in the fourth position of the adjustment document.

  6. Treas. Reg. 31.6302-1(c) requires an employer to deposit employment taxes on the next business day after $100,000 or more of employment taxes have been accumulated during the deposit period. The Service allows for an administrative waiver of the failure to deposit (FTD) penalty in certain circumstances where the FTD penalty is asserted on a $100,000 next-day deposit obligation of employment taxes arising from the exercise of a nonqualified stock option (NQSO) within a deposit period. Consistent with IRC 83 and the employment tax treatment of most forms of non-cash compensation, the employer must withhold employment taxes, including income and FICA taxes, at the time that a NQSO is exercised.

    1. If an FTD penalty is asserted on a $100,000 next-day deposit obligation of employment taxes arising from the exercise of a NQSO within a deposit period, the penalty figured on the $100,000 next-day deposit obligation may qualify for an administrative waiver.

    2. To figure the amount of abatement applicable to the administrative waiver, the penalty must be recalculated on the $100,000 next-day liability amount (arising from the inclusion of a NQSO) using the settlement date of the NQSO as the liability incurred date for the $100,000 next-day deposit obligation.

    3. The taxpayer must provide the exercise date and settlement date of the NQSO prior to consideration. Accept the settlement date provided when settlement occurred within three business days of the exercise date. Otherwise, use the third business day after the exercise date if the settlement date occurred more than 3 business days after the exercise date.

    4. Command code FTDPN can be used to recalculate the FTD penalty figured on the $100,000 next-day liability amount (arising from the inclusion of a NQSO) using the settlement date of the NQSO as the liability incurred date. In order to correctly recalculate the FTD penalty using CC FTDPN, two separate penalty calculations must be initiated and combined per the following steps:

      FTD Penalty Recalculation
      Steps Action
      (1) From the FTDPN liability screen,
      1. Remove the cumulative daily liability amount(s) within the deposit period that created the $100,000 next-day deposit obligation arising from a NQSO.

      2. Move the curser to the last liability listed for the quarter and transmit (Page Up).

      (2) Page over to the FTDPN credit screen,
      1. Remove the corresponding deposit(s) designated for the liability amount(s) removed in (1) above.

      2. Move the curser after the last deposit listed on the credit screen and transmit (Page Up) for the penalty result.

      3. Add the resulting penalty amount to the second penalty computation amount figured in (3) and (4) below:

      (3) Using the blank liability screen accessed through FTDPNA (or FTDPNG if the settlement date used for the recomputation is for a date in the subsequent quarter),
      1. Combine the liability amount(s) removed in (1) above.

      2. Enter the combined amount as a single liability incurred on the settlement date of NQSO provided by the taxpayer.

        Note:

        The timeframe for the settlement date is restricted to no later than the third day after the exercise date of the NQSO.

      (4) Page to the credit screen,
      1. Overlay the transaction code of the first credit (to remove all credits on the page) with NNN and transmit.

      2. Page to the credit screen and enter ONLY the deposit amounts applicable to the liability amounts entered in (3).

      3. Move the curser after the last deposit listed on the credit screen and transmit (Page Up) for the penalty result.

      4. Add the resulting penalty amount to the first penalty computation arrived at from (1) and (2) above.

      (5) Using PRC 043 (Administrative Waiver) in the fourth position of the adjustment document, Abate the difference between the assessed penalty and the recalculated penalty amount arrived at in (4) above.

20.1.4.26.3  (04-20-2010)
Statutory Penalty Relief

  1. Failure to deposit penalty provisions of IRC 6656 provide that a taxpayer may designate the application of its federal tax deposits for a particular return period in order to minimize the FTD penalty under IRC 6656 with respect to deposits required to be made after January 18, 1999. See Rev. Proc. 2001–58 and the "Instructions for Designation of Federal Deposit" in Chapter 7 of Part 21 of the Job Aids located on SERP.

    1. This procedure applies with respect to all taxes required to be deposited after January 18, 1999 that are reported on Form 720, Form 940, Form 941, Form 943, Form 944, Form 945, and Form 1042.

    2. This permits a taxpayer receiving a penalty notice (with respect to any deposit of tax made for a specific tax period) to designate during the 90-day period beginning on the date of a penalty notice, the deposit period or periods to which a deposit of tax shall apply.

    3. A request not received within 90 days of the 23C date of a notice containing an FTD penalty assessment cannot be considered per IRC 6656(e)(2), as amended by section 3304(a) of the IRS Restructuring and Reform Act of 1998.

    4. If the request is not received timely (within 90 days of the 23C date of a notice containing an FTD penalty assessment), designation cannot be considered. Issue CP 568 notice using the sample paragraph located in the "Instructions for Designation of Federal Deposit" in Chapter 7 of Part 21 of the Job Aids located on SERP.

    5. The taxpayer may designate more than one deposit. If the taxpayer has multiple designations, he/she may have used a computer program to work it out. If so, you may want to obtain a copy of the computation generated from the computer program to assist in the recomputation.

    6. Reduce the penalty amount, using Penalty Reason Code (PRC) 012 (in the fourth position of the adjustment document). Prior to tax year 2006, PRC 044 was used instead of PRC 012 for this Statutory FTD Penalty Relief.

    7. If the re-designation results in a higher penalty amount, provide an explanation to the taxpayer along with the option of keeping the lower penalty amount.

  2. Effective July 1, 1996, the Taxpayer Bill of Rights 2 (TBOR2) provides that the Internal Revenue Service may waive the FTD penalties with respect to an inadvertent failure to deposit any employment tax if:

    1. The depositing entity meets the net worth requirements applicable for the award of attorney’s fees,

      Note:

      For individuals — net worth does not exceed $2 million. For corporations or partnerships — net worth not exceeding $7 million.

    2. The failure to deposit occurs during the first quarter that the depositing entity was required to deposit any employment tax, and

    3. The return for employment tax was filed on or before the due date.

  3. TBOR2 also provides that the Internal Revenue Service may abate any penalty for failure to make deposits for the first time if the taxpayer sends a deposit to the Internal Revenue Service instead of to the required U.S. Government depositary. The FTD penalty for first time depositors of employment taxes (Forms 941, 943 and 944) is systemically waived and generates a CP 238, Late Federal Tax Deposit (FTD) Educational Notice - No Penalty Charged, to inform the taxpayer of the penalty waiver.

20.1.4.27  (05-22-2009)
Penalty Appeals

  1. Refer to IRM 20.1.1, Introduction and Penalty Relief, for procedures to follow when a taxpayer appeals a penalty assessment.

  2. Managers may review employee penalty determinations and are considered the first line of appeal, whenever an appeal is requested by a taxpayer.

  3. Refer to IRM 20.1.1, Introduction and Penalty Relief, for duties required of employees holding the Penalty Appeals Coordinator position.

Exhibit 20.1.4-1 
Employment and Excise Tax Program Forms

Employment and Excise Tax Program Forms
Forms Title
Form CT-1 Employer's Annual Railroad Retirement Tax Return
Form CT-1X Adjusted Employer’s Annual Railroad Retirement Tax Return or Claim for Refund
Form 940, Form 940-EZ (prior to 01/01/2007) 940, Employer's Annual Federal Unemployment (FUTA) Tax Return

Note:

2005 was the last year for filing Form 940-EZ. All employers will now file Form 940.

Form 941 Employer's QUARTERLY Federal Tax Return
Schedule B (Form 941) Report of Tax Liability for Semiweekly Schedule Depositors
941–X Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund
Form 943 Employer's Annual Federal Tax Return for Agricultural Employees
Form 943–A Agricultural Employer's Record of Federal Tax Liability
Form 943-X Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund
Form 944 Employer’s ANNUAL Federal Tax Return
Form 944-X Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund
Form 945 Annual Return of Withheld Federal Income Tax
Form 945–A Annual Record of Federal Tax Liability
Form 945–X Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund
Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Form 720 Quarterly Federal Excise Tax Return
720, Schedule A Excise Tax Liability (Page 3 of Form 720)
Form 6197 Gas Guzzler Tax (Reported on Form 720)
Form 6627 Environmental Taxes (Reported on Form 720)

Exhibit 20.1.4-2 
Electronic Deposit Requirement Threshold Amounts

Electronic Deposit Requirement Threshold Amounts
Electronic Deposit Requirement Threshold Amounts
2011 and subsequent- Electronic depositing using the electronic funds transfer system (EFT) is required of all depositary taxes (such as employment tax, excise tax, and corporate income tax) made in 2011 and subsequent
2010 and prior- Electronic depositing using EFT is required of all depositary taxes (such as employment tax, excise tax, and corporate income tax) if the taxpayer's "aggregate deposits" for the second preceding calendar year exceed $200,000. (For example, in 2010, the taxpayer is required to deposit electronically if aggregate deposits in 2008 exceeded $200,000.) A taxpayer must begin depositing electronically on January 1 (and forward) of the year it became required to use EFT.

Exhibit 20.1.4-3 
FTD Averaging Methods

FTD Averaging Methods
Forms 941, 943, 944, 945, and CT-1
Liability Schedule Missing or Unacceptable— Semi-weekly Depositors:
Divide the total tax by 12 (if quarterly).
Divide by 48 (if annual).
Assign the resulting tax liabilities to the first four Wednesdays of each month.
Monthly Depositors
Divide the total tax by 3 (if quarterly).
Divide by 12 (if annual).
Assign the resulting tax liabilities to each month.
Monthly Liability Schedule Provided— Semi-weekly Depositors:
Divide each month's tax liability by 4.
Assign the resulting tax liabilities to the first four Wednesdays of each month.

Exhibit 20.1.4-4 
Forms 941, 943, 944, 945, and CT-1 Deposit Requirements

Forms 941, 943, 944, 945, and CT-1 Deposit Requirements
If the TOTAL Liability is… And... Then a deposit must be made…
$50,000 or less during the lookback period   On or before the 15th day of the following month
More than $50,000 during the lookback period… Payment date is:
• Saturday
• Sunday
• Monday, and/or
• Tuesday
On or before the following Friday
Payment date is:
• Wednesday
• Thursday, and/or
• Friday
On or before the following Wednesday

Lookback Period: A four quarter period.

• Form 941 filers (with no Form 944 in the first or second preceding calendar year), the twelve-month period ending the preceding June 30. For example, the lookback period for calendar year 2010 is the period from July 1, 2008 to June 30, 2009 (which encompasses the quarters ended 200809, 200812, 200903, and 200906).

• Form 941 filers (Form 944 in the first or second preceding calendar year), the second preceding calendar year.

• For annual returns, the second preceding calendar year.

$100,000 One-day Rule: Taxes reach $100,000 or more within a monthly or semi-weekly deposit period.

• Must be deposited in time to settle on the next banking day for either the monthly or semi-weekly depositor.

Safe Harbor Rule: An employer who deposits less than the full amount of the deposit liability will not be penalized if the deposit shortfall is:

• $100 or less, OR

• 2 percent or less of the amount which should have been deposited.

Exhibit 20.1.4-5 
Form 944 De Minimis Exception

Form 944 De Minimis Exception
If The Tax Liability is: Deposit Obligation:
Less than $2,500 for the year No deposit required. The tax can be paid by check or money order with the return or by credit card. (If the employer is unsure that the tax liability for the year will be less than $2,500, the employer should deposit under the rules below.)
$2,500 or more for the year, but less than $2,500 for the quarter The employer can deposit by the last day of the month after the end of a quarter. However, if the fourth quarter tax liability is less than $2,500, the fourth quarter’s tax liability can be paid by check or money order with a timely filed Form 944 or by credit card.
$2,500 or more for the quarter Deposits are due monthly, or semi-weekly, depending on the deposit schedule. Taxes that reach $100,000, or more within a deposit period, must be deposited in time to settle on the next banking day for either the monthly or semi-weekly depositor. See section 11 of Pub 15, (Circular E) Employer's Tax Guide.

Exhibit 20.1.4-6 
Form 940 Deposit Requirements

Form 940 Deposit Requirements
Form 940 DEPOSIT REQUIREMENTS FOR PERIODS BEGINNING ON OR AFTER JANUARY 1, 2005
If the tax liability is… And it is the end of… Then,
$500 or less first quarter tax is carried over to next quarter.
$500 or less second quarter tax is carried over to next quarter.
$500 or less third quarter tax is carried over to next quarter.
$500 or less fourth quarter tax is due by the return due date (RDD). Tax can be deposited, paid with a major credit card, or paid with a check or money order with the return.
Over $500 any quarter tax must be deposited by the last day of the following month*.
Form 940 DEPOSIT REQUIREMENTS FOR PERIODS ENDING ON OR BEFORE DECEMBER 31, 2004
If the tax liability is… And it is the end of… Then,
$100 or less first quarter tax is carried over to next quarter.
$100 or less second quarter tax is carried over to next quarter.
$100 or less third quarter tax is carried over to next quarter.
$100 or less fourth quarter by the return due date (RDD) tax can be deposited or paid with a check or money order with the return.
Over $100 any quarter Tax must be deposited by the last day of the following month*.
*IF THE EMPLOYER'S LIABILITY FOR ANY QUARTER IS OVER:
$500
for periods beginning on or after January 1, 2005, or
$100 for periods ending on or before December 31, 2004
Quarter Ending Due Date
Jan–Feb–Mar Mar 31 April 30
Apr–May–Jun June 30 July 31
Jul–Aug–Sep Sept 30 Oct 31
Oct–Nov–Dec Dec 31 Jan 31

Exhibit 20.1.4-7 
Form 720 Return Due Dates

Form 720 Return Due Dates
RETURN DUE DATES FOR FORM 720
Quarter Covered Return Due Date
FIRST APRIL 30
SECOND JULY 31
THIRD OCTOBER 31
FOURTH JANUARY 31
FILING AND PAYMENT DATES FOR FLOOR STOCK TAXES
Tax Filing Date Payment Date
ODCs (IRS No. 20) JULY 31 JUNE 30
ADDITIONAL DEPOSIT OF TAXES IN SEPTEMBER
  For the Period  
Type Beginning on Ending on Due Date
All Part I taxes:*      
EFT Sept 16 Sept 26 Sept 29
Non-EFT (before 2011) Sept 16 Sept 25 Sept 28
Alternative method taxes ( 22, 26, 27, and 28) (based on amount billed)      
EFT Sept 1 Sept 11 Sept 29
Non-EFT (before 2011) Sept 1 Sept 10 Sept 28

*Alternative method Taxes, which are listed separately.

Exhibit 20.1.4-8 
Form 1042 Deposit Requirements For All Periods

Form 1042 Deposit Requirements For All Periods

DEPOSIT REQUIREMENTS FOR ALL PERIODS. (Based on the amount of undeposited taxes at the end of the deposit period called a quarter-monthly period. Exception may apply due to Foreign Tax Treaties.)

If undeposited taxes are… And it is the end of… Then,
under $200 End of a month except December taxes are carried to the next month.
under $200 end of December taxes may be paid with the return, or deposited by the RDD.
$200 or more, but less
than $2,000*
end of any month deposits must be made by the 15th of the following month.
$2,000 or more end of a quarter-monthly period deposits must be made within three banking days. The 90 Percent/Safe Harbor provisions apply for tax periods 2010 and prior.
*EXCEPTION: If an earlier quarter-monthly deposit was made and taxes are $200 or more but less than $2,000 in a month other than December, the taxes are carried to the next month. For December, the deposits must be made by the RDD.

Exhibit 20.1.4-9 
Instructions for Command Code FTDPN

Instructions for Command Code FTDPN
Instructions for Command Code FTDPN
Initial output display screen attempts to "MATCH" the Master File generated penalty.

Caution:

FTDPN will display "MISMATCH" on the initial FTDPNB screen when the penalty calculation differs from Master File.

Can be used as a calculator to determine the FTD penalty for Form 940, Form 941, Form 943, Form 945, Form 1042, and Form CT-1.
Changes made to FTDPN do not change the FTD penalty record on Master File.
Allows for computation of accounts with liabilities over $100,000
Can generate an "account specific" explanation (CP 568) of the penalty computed for selected liability(ies) and/or a full account summary table.
 

FTDPN
Entering CC FTDPN with no definer will result in the response screen, FTDPNB, which displays credits and liabilities from the module but allows the user the option to change those amounts for purposes of recomputation.
 
FTDPNA

– If no liability breakdown has been provided, use the A modifier to average the liability.
– Results in the FTDPNB screen with no liability amounts displayed.
– Entering the total tax will result in a display of both the averaged liability dates and the averaged liability amounts.
 
FTDPNG

– For use when account is not on TIF.
– Results in FTDPNB with blank liability and credit screens.

Exhibit 20.1.4-10 
Penalty Computation Code (PCC) Definitions

Penalty Computation Code (PCC) Definitions
TC Codes With ROFTL Without ROFTL Incorrect ROFTL
ALL TC 650 003 011/057* 054/057*
ALL TC 670 041 043/057* 055/057*
MIX 042 044/057* 056/057*
$100,000 * 003/041/042 057* 057*
* If $100,000 account, use PCC 057

Note:

For CAWR and FUTA adjustments, use PCC 018

Exhibit 20.1.4-11 
Schedule Indicator Code (SIC) Definitions

Schedule Indicator Codes (SIC)
SIC Definitions
0 Return processed with good liability information
1 Missing valid liability information penalty computed by averaging available information
2 Reasonable cause claimed
3 Church Social Security Issue
6 Penalty is calculated with good liability information containing $100,000 or more liability
7 Return does not have complete and accurate liability information and liability amount(s) when averaged are $100,000 or more.

Exhibit 20.1.4-12 
ROFTL Enclosures

ROFTL Enclosures
Tax Return ROFTL Enclosure Form or Schedule
Form 941 Schedule B (Form 941)
Form 941-SS Schedule B (Form 941)
Form 941-PR Anexo B (Forma 941-PR)
Form 945 Form 945–A
Form 943 Form 943–A
Form 944 Form 945–A
Form 944(SP) Form 943A-PR
Form 944-SS Form 945-A
Form 944-PR Form 943A-PR
Form 940 Form 4977
Form CT-1 Form 945–A
Form 720 Form 720, Schedule A
Form 1042 Form 4977

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