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PayrollPenalty's payment allocation methodology complies with all legislative and
regulatory rules. We reduce penalties by using a pro-taxpayer strategy for
designating how deposits should be applied. The authority for designating deposits
is found in the 1998 IRS Reform and Restructuring bill, which added the following
Section 6656(e) to the Internal Revenue Code:
(e) Designation of periods to which deposits apply
(1) In general.
A person may, with respect to any deposit of tax to be reported on such person's
return for a specified tax period, designate the period or periods within such specified
tax period to which the deposit is to be applied for purposes of this section.
(2) Time for making designation. A person may make a designation
under paragraph (1) only during the 90-day period beginning on the date of a notice
that a penalty under subsection (a) has been imposed for the specified tax period
to which the deposit relates.
In response to this legislative change, the IRS adopted Revenue Procedure 99-10:
Here is the text of the Revenue Procedure:
Rev. Proc. 99-10 Release Date: JANUARY 11, 1999
SECTION 1. PURPOSE
This revenue procedure provides guidance with respect to the failure-to-deposit
penalty provisions of section 6656 of the Internal Revenue Code, as amended by section
3304(a) of the Internal Revenue Service Restructuring and Reform Act of 1998. Pub.
L. No. 105-206, 112 Stat. 742 (1998) (RRA). This revenue procedure describes how
a taxpayer may designate the application of its federal tax deposits for a particular
return period in order to minimize the failure-to- deposit penalty under section
6656 with respect to deposits required to be made after January 18, 1999.
SECTION 2. BACKGROUND
.01 Section 6656 provides that in the case of any failure by any
person to deposit (as required by the Code or regulations) on the date prescribed
any amount of tax in a government depository, there will be imposed upon such person
a penalty equal to the applicable percentage of the amount of the underpayment,
unless it is shown that such failure is due to reasonable cause and not due to willful
neglect. The penalty ranges from 2 to 15 percent depending upon the lateness of
the deposit.
.02 Revenue Procedure 90-58, 1990-2 C.B. 642, effective for return
periods beginning after March 31, 1991, provides that deposits for a return period
will be applied in a date-made order against deposit liabilities in a due-date order.
Thus, the Service will apply a deposit first to satisfy the oldest past due deposit
liability within the same return period. Other credits to the taxpayer's account,
such as an overpayment from the previous return period, will be similarly applied.
.03 The rationale underlying Rev. Proc. 90-58 is that it is generally
in the best interest of depositors that strive to be compliant to have the oldest
deposit liability in the return period satisfied first, thus preventing the penalty
rate on that liability from escalating. However, if a depositor inadvertently misses
a deposit early in a return period but makes all succeeding deposits on a timely
basis, the result can be multiple failure-to-deposit penalties.
.04 Notice 98-14, 1998-8 I.R.B. 27, provides an interim procedure
that taxpayers may use to request abatement of the failure- to-deposit penalty imposed
by section 6656 when the deposit liabilities against which the Service applies deposits,
as set forth in Rev. Proc. 90-58, produces multiple failure-to-deposit penalties
as a result of a single failure to deposit. Under that notice, taxpayers that wish
to request relief are instructed to call the toll-free number shown on the penalty
notice. Notice 98-14 applies with respect to return periods beginning after December
31, 1997.
.05 Section 3304(a) of the RRA added new section 6656(e), which
permits a taxpayer receiving a penalty notice (with respect to any deposit of tax
made for a specific tax return period) to designate, during the 90-day period beginning
on the date of a penalty notice, the deposit period or periods within the return
period to which a deposit of tax shall apply. Pursuant to section 3304(d)(1) of
the RRA, section 6656(e) is effective for federal tax deposits required to be made
after January 18, 1999 (180 days after the July 22, 1998, enactment of the RRA).
SECTION 3. SCOPE
.01 Applicability.
(1) This revenue procedure applies to a taxpayer requesting abatement
of the failure-to-deposit penalty imposed by section 6656 when the deposit liabilities
against which the Service applies deposits or credits, as set forth in Rev. Proc.
90-58, produces multiple failure-to-deposit penalties for any tax specified in section
3.01(2) of this revenue procedure.
(2) This revenue procedure applies with respect to all taxes required
to be deposited after January 18, 1999, pursuant to section 6302 and the regulations
thereunder that are reported on the following Internal Revenue Service forms:
(a) Form 720, Quarterly Federal Excise Tax Return;
(b) Form 940, Employer's Annual Federal Unemployment (FUTA) Tax
Return;
(c) Form 941, Employer's Quarterly Federal Tax Return;
(d) Form 943, Employer's Annual Tax Return for Agricultural Employees;
(e) Form 945, Annual Return of Withheld Federal Income Tax;
(f) Form CT-1, Employer's Annual Railroad Retirement and Unemployment
Repayment Tax Return; or
(g) Form 1042, Annual Withholding Tax Return for U.S. Source Income
of Foreign Persons.
.02 Inapplicability. This revenue procedure does not address changes
made to section 6656 by section 3304(c) of the RRA for deposits required to be made
after December 31, 2001. The Service intends to provide future guidance with respect
to those changes.
SECTION 4. RELIEF PROCEDURE
Any taxpayer that receives a penalty notice for a return period
showing multiple failure-to-deposit penalties for any tax specified in section 3.01(2)
of this revenue procedure that is required to be deposited after January 18, 1999,
may, within 90 days of the date of the penalty notice, call the toll-free number
shown on the penalty notice and designate the deposit period, or periods, within
such specified return period to which the deposit(s) of, or credit(s) against, the
tax for the return period are to be applied. To the extent that the taxpayer's designation
is within the scope of section 6656(e), the Service will adjust the multiple penalties
to reflect the penalty amount due on the remaining failure(s) to deposit and so
notify the taxpayer in writing.
SECTION 5. EXAMPLES
.01 Example 1. For the first calendar quarter of 1999, A, a semi-weekly
employment tax depositor within the meaning of section 31.6302-1 of the Employment
Taxes and Collection of Income Tax at Source Regulations, accumulates the following
employment tax deposit liabilities for its bi-weekly paydates, and makes the following
deposits:
|
DATE |
DUE |
PAID |
SHIFTED |
AMT LEFT |
UNDERPAYMENT |
|
1-6-99 |
$7,000 |
$7,000 |
$0 |
$7,000 |
$0 |
|
1-21-99 |
$5,000 |
$4,000 |
$0 |
$4,000 |
$1,000 |
|
2-3-99 |
$5,000 |
$5,000 |
$1,000 |
$4,000 |
$1,000 |
|
2-18-99 |
$8,000 |
$8,000 |
$1,000 |
$7,000 |
$1,000 |
|
3-3-99 |
$6,000 |
$6,000 |
$1,000 |
$5,000 |
$1,000 |
|
3-17-99 |
$5,000 |
$4,000 |
$1,000 |
$3,000 |
$2,000 |
|
3-31-99 |
$10,000 |
$10,000 |
$2,000 |
$8,000 |
$2,000 |
During April 1999, A completes its Form 941 for the first
quarter and discovers the January 21, 1999, and March 17, 1999, underdeposits. On
April 30, 1999, the due date for the Form 941, A files the Form 941 and deposits
$2,000.
The Service mails a notice to A dated July 21, 1999, advising that
A is subject to the section 6656 failure-to-deposit penalty as follows:
|
DATE |
UNDERPAY |
DAYS |
RATE |
AMOUNT |
|
1-21-99 |
$1,000 |
13 |
5% |
$50 |
|
2-3-99 |
$1,000 |
15 |
5% |
$50 |
|
2-18-99 |
$1,000 |
13 |
5% |
$50 |
|
3-3-99 |
$1,000 |
14 |
5% |
$50 |
|
3-17-99 |
$2,000 |
14 |
5% |
$100 |
|
3-31-99 |
$2,000 |
30 |
10% |
$200 |
TOTAL $500
Under section 6656(e), A has until October 18, 1999, to designate its
deposits for the first quarter of 1999 by calling the toll-free number shown on
the penalty notice. On August 19, 1999, A calls the toll-free number shown on the
penalty notice and designates its February 3, 1999, February 18, 1999, March 3,
1999, March 17, 1999, and March 31, 1999, deposits to each apply entirely to the
federal tax deposit due on each of those respective days. By so designating its
deposits, A is no longer subject to the failure-to-deposit penalty for its federal
tax deposits due on February 3, 1999, February 18, 1999, March 3, 1999, and March
31, 1999. However, A continues to be liable for the January 21, 1999, and March
17, 1999, underdeposits. The Service will reduce the total penalty amount to which
A is subject to $200 as follows:
|
DATE |
UNDERPAY |
DAYS |
RATE |
AMOUNT |
|
1-21-99 |
$1,000 |
99 |
10% |
$100 |
|
3-17-99 |
$1,000 |
44 |
10% |
$100 |
TOTAL $200
.02 Example 2. For the first calendar quarter of 1999, B, a semiweekly
employment tax depositor within the meaning of section 31.6302-1 of the regulations,
accumulates $5,000 of employment tax liabilities for each of its biweekly paydates,
and makes $5,000 deposits as follows:
|
DUE |
PAID |
DAYS |
RATE |
AMOUNT |
|
1-6-99 |
1-6-99 |
0 |
0% |
$0 |
|
1-21-99 |
1-22-99 |
1 |
2% |
$100 |
|
2-3-99 |
2-4-99 |
1 |
2% |
$100 |
|
2-18-99 |
2-19-99 |
1 |
2% |
$100 |
|
3-3-99 |
3-4-99 |
1 |
2% |
$100 |
|
3-17-99 |
3-18-99 |
1 |
2% |
$100 |
|
3-31-99 |
4-1-99 |
1 |
2% |
$100 |
TOTAL $600
The Service mails a notice to B dated July 28, 1999, advising
that B is subject to a $600 failure-to-deposit penalty under section 6656. Under
section 6656(c), B has until October 25, 1999, to designate the deposit liability
due dates to which its deposits for the first quarter of 1999 will be applied by
calling the toll-free number shown on the penalty notice. On September 30, 1999,
B calls the toll-free number shown on the penalty notice and designates that its
deposits be applied to its deposit liability due dates as follows:
|
DEPOSIT DATE |
DUE DATE
|
DESIGNATION DATE |
DAYS |
RATE |
AMOUNT |
|
1-6-99 |
1-6-99 |
1-6-99 |
0 |
0 |
$0 |
|
1-21-99 |
1-22-99 |
2-3-99 |
0 |
0 |
$0 |
|
2-3-99 |
2-4-99 |
2-18-99 |
0 |
0 |
$0 |
|
2-18-99 |
2-19-99 |
3-3-99 |
0 |
0 |
$0 |
|
3-3-99 |
3-4-99 |
3-17-99 |
0 |
0 |
$0 |
|
3-17-99 |
3-18-99 |
3-31-99 |
0 |
0 |
$0 |
|
3-31-99 |
4-1-99 |
1-21-99 |
70 |
10% |
$500 |
TOTAL $500
By so designating its deposits, the Service will reduce
the total penalty amount to which B is subject to $500.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for federal tax deposits required
to be made after January 18, 1999.
SECTION 7. EFFECT ON OTHER DOCUMENTS
.01 Notice 98-14 is superseded with respect to federal tax deposits
required to be made after January 18, 1999. Notice 98-14 continues to apply to deposits
required to be made on or before January 18, 1999, with respect to return periods
beginning after December 31, 1997.
.02 Rev. Proc. 90-58 is amplified.
DRAFTING INFORMATION
The principal author of this revenue procedure is Marc C. Porter of
the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information
regarding this revenue procedure, contact Marc C. Porter at (202) 622-4940 (not
a toll-free call).
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