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

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

The Internal Revenue Code(IRC) and Treasury regulations are the primary sources of authority for the administration of federal tax deposit penalties. The following sections of the IRC and Treasury Regulations are sources of that authority.

The Director, Business Support Office, is the director responsible for the servicewide civil penalty program, including federal tax deposit (FTD) penalties.

Overall responsibility for FTD penalties is assigned to OSP. OSP resides in the Business Support (Small Business/Self Employed) Function. OSP coordinates policies and procedures concerning the administration of civil penalty programs, including FTD penalties, ensuring consistency with the penalty policy statement, reviewing and analyzing FTD penalty information, researching penalty effectiveness and determining appropriate action needed to promote voluntary compliance.

Each team manager, or immediate supervisor, must approve all manual FTD penalty assessments, unless the assessment is computed solely with CC FTDPN or ACT/DMI InterestNet without any independent judgement.

Every function in the IRS has a role in proper penalty administration. It is essential that each function conduct its operations with an emphasis on promoting voluntary compliance. Appropriate reviews should be conducted to ensure consistency with the penalty policy statement (IRM 1.2.1.12.1 , Policy Statement 20-1 (Formerly P-1-18), Penalties are used to enhance voluntary compliance) and philosophy.

To promote the goal of consistency and fairness, OSP will review semi-annually a sample of FTD penalty assessments and other penalty assessments, provided by SB/SE Research. See IRM 20.3.1, Civil Penalty Accuracy Review Process. The report of findings is shared with the Director, Business Support, the CFO, and other leadership as needed. The completed report is uploaded to an enterprise shared folder. No other reports on FTD penalties are prepared on a regular basis by OSP. Reports may be prepared when a significant issue develops, such as a correction to programming that affects many taxpayers.

IMD Certification: this IRM is annually recertified as required by SPDER and regularly updated when new legislation or policy is published.

Refer to the exhibits at the end of the IRM section:

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

Job aid on the SERP - Most Recent Payment Allocation Method - Job Aids (irs.gov) located in Chapter 7 of IRM 21 Job Aids.

Other Exhibits in this IRM:

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

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

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

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

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

As of December 31, 2010, deposits by Form 8109, Federal Tax Deposit Coupon, are no longer processed.

According to IRM 1.2.1.12.2, Policy Statement 20-2 (Formerly P-2-4), penalties and interest won’t be asserted against federal agencies.

These agencies are marked with an employment code "F" on the entity module. See IRM 3.13.2.6.3, Employment Code (EC) F, for additional information.

In Rev. Proc. 2013-39, the IRS determined that state and local government health and welfare agencies, acting as agents under IRC 3504 with respect to employers who receive public assistance to pay for in-home domestic services, aren’t subject to federal tax deposit requirements. These state agents need only to make payments by the due date of the return. Taxes don’t have to be deposited.

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

Don’t assess any failure to deposit penalty on these entities. In addition, abate the penalty with PRC 043 on modules (for all years) with an unreversed failure to deposit penalty when working on other issues on these modules.

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

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

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

Taxpayers may make their deposit any time between the date the payroll liability is incurred and the date the deposit is due. They aren’t required to wait until the due date to make a deposit and won’t receive a penalty for making deposits prior to the due date. An employer isn’t required to make a deposit more often than a payroll is made. However, 100 percent of the amount required to be deposited is due on the deposit due date unless the employer meets one of the exceptions. See Exhibit 20.1.4-4, Forms 941, 943, 944, 945, and CT-1 Deposit Requirements and IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

If the deposit due date is a Saturday, Sunday, or legal holiday in the District of Columbia, a deposit made on the next day that is not a Saturday, Sunday, or legal holiday is timely as provided by IRC 7503 . See IRM 20.1.4.7.3, Business Days and Legal Holidays.

Semi-weekly depositors have at least three business days following the close of the semi-weekly period. If any of the three weekdays following the close of a semiweekly period is a legal holiday, an employer has an additional day for each day that is a legal holiday to make the deposit. See IRM 20.1.4.8.5 (2), Rule For Semi-weekly Non-Business Days.

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

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

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

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

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Beginning in 2011, "banking days" are replaced by "business days." See 26 CFR 31.6305-1(c)(4) and 26 CFR 31.6302-1(c)(5) Example 5. Deposits are due only on business days. A business day for deposit purposes is every calendar day that is not a Saturday, Sunday, or legal holiday under IRC 7503. Additionally, the term legal holiday for FTD purposes includes only those legal holidays in the District of Columbia. Thus, a statewide legal holiday will no longer be considered a legal holiday unless the holiday coincides with a legal holiday in the District of Columbia. The following days are currently legal holidays in the District of Columbia: New Year's Day, Birthday of Martin Luther King, Jr., Washington's Birthday, District of Columbia Emancipation Day, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and the day of the inauguration of the President every fourth year. See D.C Code Ann. 28-2701.

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

Payments are identified on Master File as follows:

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

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

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

The COBRA TC 766 (CRN 299) credit is applied by Master File using the first day of the tax period as the credit effective date and uses the credit in the FTD penalty calculation. The credit was available for employees involuntarily terminated between September 1, 2008, and May 31, 2010, for fifteen months after employer provided coverage ended.

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

The Work Opportunity Credit TC 766 (CRN 290) is applied by Master File on the first day of the tax period as the credit effective date and uses the credit to recalculate any FTD penalty. See IRB 2012-13 informing employers that the applicable penalty will be abated when the credit is applied, generally without any taxpayer action. It must be claimed on Form 5884-C by qualified tax-exempt organizations after Form 941, 943, or 944 is filed. The credit may not exceed the employer portion of the social security tax. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. The credit may be applied for tax periods 201112 through 202012 for Form 941, Form 943, and Form 944.

The QSB Research Credit (IRN 119) is valid for Form 941 tax periods 201706 and later, or for Form 943 or Form 944 tax periods 201712 and later. The election and determination of the amount of credit is made on Form 6765, Credit for Increasing Research Activities, attached to an income tax return. That amount is reported on Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, attached to the employment tax return. It is applied to the employer’s share of social security tax. Each liability is reduced until the credit is used. Any excess credit can be carried forward to the next tax period

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

An employer who was in the Employers' Annual Federal Tax Program (Form 944) in the preceding year, but will file Forms 941 instead for the current year, will be deemed to have timely deposited its (Form 941) January deposit obligation(s) under 26 CFR 31.6302–1(c)(1) through (4) for the first calendar quarter of the year in which it must file quarterly using Form 941 if the employer deposits the amount of such deposit obligation(s) by March 15th of that year.

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

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

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

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

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

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

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

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

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

If an employer reported employment taxes of $50,000 or less during the one year lookback period, (See IRM 20.1.4.8.2, Lookback Periods for Employment Tax) the employer is a monthly depositor and generally must deposit employment taxes on a monthly basis during the calendar year.

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

If the 15th of the following month falls on a Saturday, Sunday, or a legal holiday in the District of Columbia, the employer will have until the next business day to make a timely deposit. See IRM 20.1.4.7.2 (3) and IRM 20.1.4.7.3.

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

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

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

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

Saturdays and Sundays were considered in arriving at a due date for semi-weekly deposits which would allow at least three business days. However, because federal holidays don’t fall on a regularly recurring schedule throughout the calendar year, the regulation provides a a special procedure for determining the due date:

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

If the deposit due date for next-day depositors is a Saturday, Sunday, or legal holiday in the District of Columbia, the deposit will be timely if it made on the next day that is not a Saturday, Sunday, or legal holiday in the District of Columbia. For example, if a deposit is due on a Friday, but that Friday is a holiday in the District of Columbia, the deposit would be timely if received by the following Monday. See IRM 20.1.4.7.2 (3) and IRM 20.1.4.7.3.

No penalty is assessed if:

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

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

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

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

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

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

If there is a discrepancy on the ROFTL due to a line item adjustment, adjust the last liability regardless of the dollar amount. See IRM 3.11.13.15.40.

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

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

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

Compare the taxpayer’s liability information from the ROFTL schedule with the deposits made. If the liability figures aren’t available, averaging is used.

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

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

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

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

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

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

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

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

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

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

Any underpayment of the amount of the tax to be deposited for the current calendar quarter must be paid by the return due date without extension.

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

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

Beginning January 1, 2011, taxpayers are required to make their excise tax deposits for all of the excise taxes via EFT system. For information on the electronic funds transfer payment system requirements, see IRM 20.1.4.2.2.1, Electronic Funds Transfer (EFT), and IRM 20.1.4.2.2.2, Electronic Federal Tax Payment System (EFTPS).

Regular method, Line 1 of Schedule A.

Alternative method, Line 2 of Schedule A.

Under the alternative method:

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

Deposits aren’t required if the net tax liability for the calendar quarter doesn’t exceed $2,500.

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

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

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

If the conditions of the safe harbor (1/6th rule) are met, a taxpayer that has made timely deposits by electronic funds transfer (EFT) of less than the full amount of net tax liability for each semi-monthly period in the calendar quarter, is considered to have satisfied the deposit requirement for the quarter. For information on the electronic funds transfer payment system requirements, see IRM 20.1.4.2.2.1, Electronic Funds Transfer (EFT) and IRM 20.1.4.2.2.2, Electronic Federal Tax Payment System (EFTPS). See IRM 20.1.4.10.7, Special Rules for Deposits in September Form 720.

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

A deposit must be made for each semi-monthly period for which there is an entry in a box on Schedule A. The amount of each deposit for a semi-monthly period must be at least the amount of the net tax liability entered in the appropriate box on Schedule A for that period unless a safe harbor rule applies.

To determine whether a sufficient amount has been deposited, Schedule A must be completed. If Schedule A is completed, compare the amounts entered on Schedule A to the deposits and payments the taxpayer has made.

The taxpayer must separate any portion of a liability that qualifies for the "Special September Rule" from Box F or M, and enter that portion of the September liability in the Special September Rule box. Therefore, a September liability amount entered in Box M or F of Schedule A, with no accompanying entry in the "Special September Rule" box, isn’t an indicator that a "Special September Rule" liability was incurred and needs to be separated from Box M or F. See the "Special September Rule" instructions shown below. See Exhibit 20.1.4-7 for explanation of Sept. 25/26.

Instructions for Reporting Under the Special September Rule

Instructions for remaining days in September Period

If the deposit is timely made by electronic funds transfer (EFT) and equals or exceeds the amount entered in the Schedule A box for the semi-monthly period, the deposit requirement for that class of tax for the semi-monthly period is satisfied.

If Schedule A is not completed, penalties must be proposed. Proposing a penalty allows the taxpayer time to provide needed information.

A penalty may be imposed if the taxpayer hasn’t made timely deposits in sufficient amounts by EFT. The taxpayer must meet the following three conditions:

For deposit purposes, divide each month into four periods ending on the 7th, 15th, 22nd, and last day of the month. These periods are called quarter-monthly periods. The quarter-monthly periods and the monthly totals are labeled 1 through 60 on the tax return.

The taxpayer must list the tax liability in the ROFTL section if the yearly tax is at least $200.

Deposit requirements are based on the amount of undeposited taxes at the end of the deposit period. Exceptions may apply due to Foreign Tax Treaties.

See Exhibit 20.1.4-8, Form 1042 Deposit Requirements For All Periods.

Refer to Form 1042 deposit requirements to determine if sufficient deposits were made. See Exhibit 20.1.4-8, Form 1042 Deposit Requirements For All Periods.

Compare the tax liability amounts entered on the ROFTL with the deposits made. If the ROFTL is incomplete, blank, or has a negative amount, then average the total tax.

There is a time sensitive four-tier penalty system for late deposits. The penalty rate assessed depends on the number of days a deposit is late. See IRM 20.1.4.7.1, Time Sensitive Four Tier Penalty System.

Remember that exceptions apply only to the last month of the reporting period (December). They don’t apply to the last month of each calendar quarter (March, June, and September).

If the total tax liability reported on the ROFTL ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on Form 1042, or the ROFTL is incomplete, blank, or has a negative amount, then average the total tax as shown below:

The determination of whether a penalty will be subject to a statutory notice of deficiency procedure usually depends on whether the underlying tax is subject to deficiency procedures.

Tax that should have been withheld under IRC 1441, Withholding of Income Tax on Nonresident Aliens, and reported on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons is subject to deficiency procedures.

The statutory notice of deficiency procedures will apply to a failure to deposit penalty on amounts of income tax withholding that aren’t reported on Form 1042 as well as any underpayment of tax. Deficiency procedures don’t apply to an FTD penalty imposed on reported tax that is shown on Form 1042 .

For additional information regarding deficiency vs. non-deficiency procedures, see IRM 20.1.1.4.2, Deficiency Procedures, and IRM 20.1.1.4.2.1, Non-deficiency Procedures.

Form CT-1, Employer’s Annual Railroad Retirement Tax Act Return, is an annual return generally due the last day of February of the following year. The Form CT-1 is used to report and pay Railroad Retirement Tax Act (RRTA) tax.

Form CT-1 consists of two major parts (Part I and II).

Taxpayers must complete Part II, Monthly Summary of Railroad Retirement Tax Liability if they are monthly depositors.

Taxpayers must complete Form 945-A, Annual Record of Federal Tax Liability, if they:

Both Part II, Monthly Summary of Railroad Retirement Tax Liability, and Form 945-A, are used to report tax liabilities reported on Form CT-1. This should be a summary of tax liability, NOT a summary of deposits.

The taxpayer must deposit by EFT if a taxpayer’s total deposits of taxes, during the determination period, exceed a prescribed dollar threshold. See Exhibit 20.1.4-2, Electronic Deposit Requirement Threshold Amounts, and IRM 21.7.1.4.8.1.3, EFTPS Deposit Requirements. After December 31, 2010, all deposits must be by EFT.

When depositing RRTA taxes the taxpayer is either a monthly or semi-weekly depositor based on the lookback period.

The deposit requirements for Form CT-1 are generally the same as the deposit requirements for Form 941.

If the yearly tax liability is less than $2,500 for return periods beginning on or after January 1, 2001, no deposits are required. The total tax liability for the period can be paid with a timely filed return instead. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

A taxpayer must follow the monthly deposit schedule if the total RRTA taxes for the lookback period are $50,000 or less. The lookback period is the second calendar year preceding the current calendar year.

A taxpayer must follow the semi-weekly deposit schedule if the total RRTA taxes during the lookback period are more than $50,000.

Refer to Form CT-1 deposit requirements. See IRM 20.1.4.12.2, Deposit Requirements Form CT-1.

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

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.

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

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.

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

The Base Period (BASE–PD) codes are:

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

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 calendar quarter affected. The TC 971 won’t 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.

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:

The STATE Code Indicator is entered on 2011 and prior 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. TD 9507 (REG-153340-09) eliminated statewide legal holidays (for purposes of figuring the FTD liability due dates) for 2012 and later tax returns.

See IRM 2.3.28.7, Federal and State-Banking Holidays, for a list of the observed state banking holidays through 2011.

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.

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

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.

Definitions for various PCCs are as follows:

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.

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

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 unpaid tax (e.g., 23C date plus 10 days). The fourth tier isn’t systemically marked or assessed if the FTD penalty (systemic TC 186) wasn’t 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 ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ hasn’t 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" .

Computer Condition Codes (CCC) 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.

Returns processed with 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.

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

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.

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. SIC 2 is entered when the taxpayer attaches an unbanked taxpayer statement to the tax return. The Campus manually reviews all CP 194 accounts.

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.

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

Employment Code "A"

Employment Code "F"

To ensure that credit posting problems are identified and corrected before computing the penalty on CP 194 notice accounts that show unpaid tax, conduct the following IDRS research:

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

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

IRB 2012-77 provides FTD penalty relief for the first three calendar quarters of 2013 for the medical device tax on Form 720. IRB 2018-10 provides FTD penalty relief for the first three calendar quarters of 2018 for the medical device tax.

Don’t assess an FTD penalty on medical device tax in the first three calendar quarters of 2013 or 2018. Any previously assessed FTD penalties on medical device tax for the first three quarters of 2013 or 2018 must be abated and an apology letter sent to the taxpayer. If Form 720 includes medical device tax and other excise tax, assess FTD penalty on the other excise tax if appropriate. Input TC 180 .00 if no FTD penalty is assessed. .

The medical device tax is not assessed on 2016 and 2017 Forms 720. See section 174 of the Protecting Americans from Tax Hikes Act of 2015, P.L.114-113.

The medical device tax is not assessed on 2018 and 2019 Forms 720. See P.L.115-120, Making further continuing appropriations for the fiscal year ending September 30, 2018, and for other purposes, signed into law on January 22, 2018.

SIC code 2 identifies a taxpayer who attaches a statement indicating "unbanked taxpayer." An unbanked taxpayer is unable to obtain bank services in order to make deposits by EFT.

See IRM 20.1.4.26.1.1, Unbanked Taxpayers, for reasonable cause criteria for unbanked taxpayers.

If there is a TC 18X with PRC 046 within the last 24 months, reasonable cause is considered met. Use PRC 030 when computing the FTD penalty.

If the taxpayer's statement meets reasonable cause criteria, compute the FTD penalty for late deposits only, using RC 062 and PRC 046. If the FTD penalty is zero, input TC 180 .00 with RC 062 and PRC 046. If the date of the statement indicates that it is a copy of a previously approved request for penalty relief, use PRC 030.

Use CC FTPDN to compute the FTD penalty. Add "E" after the transaction code (usually TC 670 or TC 610) on the payments page for all payments that meet reasonable cause for failure to deposit by EFT. The FTD penalty is computed for late payments.

If there is a history item on AMS showing the taxpayer was unable to obtain banking services within the last 24 months, then reasonable cause is considered met. Use PRC 030 when computing the FTD penalty.

A valid ROFTL is required for FTD penalty relief. If the statement is incomplete, and none of the above apply, or there is no valid ROFTL, contact the taxpayer by telephone or with Letter 313-C to obtain a signed statement showing recent attempts to obtain banking services and/or a valid ROFTL.

If the taxpayer doesn’t reply with a signed statement that meets reasonable cause criteria, assess FTD penalty per IRM 20.1.4.7.1, Time Sensitive Four Tier Penalty System.

If the taxpayer doesn’t supply a valid ROFTL, compute an averaged penalty.

If the taxpayer's statement includes a request for penalty relief for late payments, determine whether reasonable cause is met for each payment. Inability to obtain banking services doesn’t meet reasonable cause criteria for late payments. If any payments meet reasonable cause for late deposit, overlay the intended deposit date on the FTDPN deposit screen.

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.

Propose an averaged FTD penalty when the ROFTL schedule or record of net tax (RONT) information is missing or invalid using Letter 313-C. See Exhibit 20.1.4-12, ROFTL Enclosures.

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

If the corrected ROFTL information in the exceptions in paragraph 2 wouldn’t decrease the amount of the penalty:

Associate the taxpayer’s reply with the suspense copy. If the suspense copy isn’t located, continue without the suspense copy.

If taxpayer provides a completed ROFTL schedule:

Taxpayer provides an unacceptable ROFTL schedule or other correspondence.

Taxpayer submits an amended return.

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

If the taxpayer doesn’t 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).

For no response cases, assess the averaged penalty. Include the 15 percent 4th tier penalty if applicable. See IRM 20.1.4.17, 15 Percent 4th Tier Penalty.

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. If a reply is not input by the 13th cycle, see IRM 20.1.4.18.2, Late Replies to CP207/207L Notices.

If the taxpayer provides a completed ROFTL schedule:

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

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

Taxpayer requests reasonable cause; corrected ROFTL schedule provided.

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

Taxpayer Submits Adjusted Return(Forms 941-X, 943-X, 944-X, 945-X), or amended returnto reduce the tax. In situations where the CP 207 or CP 207L notice was generated because ROFTL schedule didn’t 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:

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.

Taxpayer Submits Interest- Free Adjusted Returnor amended return (Forms 941-X, 943-X, 944-X, 945-X), Taxpayer must still submit a correct ROFTL. A correct ROFTL doesn’t include TC 298/308. If taxpayer doesn’t submit a correct ROFTL, contact the taxpayer, explaining what is required. If there is no reply, allow master file to compute an averaged penalty before making the interest-free adjustment.

If a tax decrease won’t be input by the 13th week following CP 207 or CP 207L notice generation, follow the procedures below.

If the taxpayer provides the corrected 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. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

If the correct penalty differs, inform the taxpayer that the reply wasn’t received in time to prevent the penalty from being automatically assessed but that we will adjust the account and issue a corrected notice.

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

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

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

When the net unpaid tax amount is determined:

Master File generates the appropriate taxpayer notice.

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

When the net unpaid tax amount is determined:

Master File generates the appropriate taxpayer notice.

If the taxpayer claims the IRS didn’t properly credit the account:

If the deposit isn’t on the account, follow the functional procedures for tracing the payments. See IRM 21.5.7, Payment Tracers.

See Rev. Proc. 97-33 and Rev. Proc. 2012-32 regarding proof of payment for EFT.

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.

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

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

If the payment posted, but the transaction date doesn’t agree with the information provided, see IRM 20.1.4.24.2, Misdated Deposits.

For information regarding the application of payments, see IRM 20.1.4.7.4, Application of Payments.

Taxpayers may submit a 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 Duplicate" determination can be made, assuming the amended ROFTL schedule is correct. See paragraph (6) below.

Any time 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.

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

If neither CP 207, CP 207L notice, nor Letter 313-C was issued, follow the instructions at (6) below.

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.

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

If the revised ROFTL schedule is not legible, not complete, has negative amounts, or is otherwise invalid, attempt to resolve the discrepancy by telephone contact with the taxpayer or authorized representative. If unable to resolve the discrepancy, return the unacceptable ROFTL schedule to the taxpayer and explain why the information is unacceptable. Highlight pertinent areas if it would help the taxpayer.

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. If the FTD penalty is zero, the notice is sufficient. Do not send an explanation or computation. EXCEPTION: See IRM 20.1.4.3(4), Restrictions on Assessments.

If the recomputed penalty doesn’t 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.

When the taxpayer files an amended return and 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, assuming the 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) and contains no negative entries. If the new tax is lower than the original, recompute and update the penalty, including any applicable fourth tier penalty. See IRM 20.1.4.3, Restrictions on Assessments.

CAUTION:Do not use any TC 298/308 tax adjustment amounts to figure the new corrected tax amount.

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) and contains no negative entries.

Include the fourth tier 15% FTD penalty on any prior tax (excluding TC 298/308) that wasn’t paid within 10 days ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the notice of assessment.

After 2009, the Form 941 de minimis exception for depositing is based on tax amounts of less than $2,500 in either the current calendar quarter or in the prior calendar quarter. Therefore, the Form 941 de minimis exception for depositing must be refigured for both the tax adjustment calendar quarter and the following quarter. If the recomputed tax becomes over $2,500, check the prior calendar quarter to determine if the de minimis exception still applies. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, (for no ROFTL required) and IRM 20.1.4.2.1, Criteria for Reporting Tax and ROFTL Information.

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 to denote a penalty no change.

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

≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 20.1.4.23.1(5), Command Code FTDPN for instructions on recalculating using the FIFO method. See IRM 20.1.4.3, Restrictions on Assessments.

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.

The adjustment will generate a notice (CP 210 or CP 220).

The account will then be subject to normal procedures for the possible assessment of the additional 5 percent 4th tier amount. See IRM 20.1.4.17.

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

Non-interest-free tax increase and revised ROFTL schedule not provided or is invalid.

Partial tax decrease and revised ROFTL schedule not provided or is invalid. See IRM 20.1.4.23(11) when completely decreasing tax and IRM 20.1.4.6 for de minimis exceptions.

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

Form 941-C, Supporting Statement to Correct Information, is obsolete and replaced with "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.

Beginning January 1, 2009, the "X" form adjusted returns (Form 941-X, Form 943-X, Form 944-X, Form 945-X, and Form CT-1X) replaced Form 941-C and should be filed with respect to errors discovered after December 31, 2008 per 26 CFR 31.6205-1 . Unlike Form 941-C, the "X" forms aren’t filed as an attachment to a current return and don’t affect the liability reported on the current return.

26 CFR 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 adjusted return.

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. The ascertained date is the date the taxpayer had the information to correct the error. The adjusted return is timely if filed by the due date of the return period in which the error was ascertained and before the statute expires. 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 298/308 isn’t 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.

TC 291/301 (tax decrease) is input: Follow instructions in IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X).

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), unless the de minimis exception applies. Follow instructions in IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest-Free Tax Increase). See IRM 20.1.4.21.3(13). Using blocking series 20 generates CP 294 if the tax isn’t paid. If there is no tax change and no revised ROFTL, don’t input TC 180.

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. If there is no tax change, don’t input TC 180. If the taxpayer overpaid, take appropriate action to refund overpayment. If a timely payment refunded, input TC 180 .00 and inform the taxpayer, requesting that the refund check be returned if not cashed.

TC 298/308 Tax Amount Unpaid or Paid Late: If full payment for TC 298 tax amount isn’t received by the date of a timely adjusted return ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, compute a 10 percent FTD penalty on the amount not remitted timely. If manually assessing the FTD penalty, you must receive written supervisory approval per IRM 20.1.4.21.7, Managerial Approval. Use PCC 003 with the TC 180 penalty assessment. Blocking series 20 generates CP 294 if the tax isn’t paid.

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. If manually assessing the FTD penalty, you must receive written supervisory approval per IRM 20.1.4.21.7, Managerial Approval.

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

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

IRC 6751(b) requires that manual FTD penalty assessments must be approved by the employee’s immediate supervisor (in writing) or such higher level official as the Secretary may designate, unless CC FTDPN or ACT/DMI InterestNet is used to compute the penalty without any independent judgement with respect to the applicability of the penalty. See IRM 2.3.28 , IDRS Command Code FTDPN.

Employees may use the IDRS command code FTDPN to compute the FTD penalty. CC FTDPN can provide the taxpayer with an explanation of how the FTD penalty was computed.

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.

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.

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

When recalculating the FTD penalty using FTDPN, use the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡"≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡" ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

See 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.

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

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:

Form 8109 isn’t accepted after December 31, 2010.

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

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

When a taxpayer makes a timely deposit by electronic request (or with a coupon to an authorized depositary before January 1, 2011), and the bank delays transmitting the deposit to the U.S. Treasury, the taxpayer’s account may be charged an FTD penalty for a late deposit. The taxpayer can be relieved of the portion of the penalty due to this delay, if:

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 challenged the penalty and the FRB reversed the disputed charges. Form 13287, Bank Payment Problem Identification, was developed to provide sufficient backup.

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:

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.

If the form is not returned or properly completed or the bank doesn’t take responsibility, and the taxpayer's return has posted, take the following actions:

If Form 13287 isn’t 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.

If a completed Form 13287 is received, the return has posted, the TC 186 isn’t 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.

The following fields are required input on CC FRM77:

TC 971 A/C 30X systemically reverses the FTD penalty only 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 doesn’t systemically reverse the FTD penalty if the penalty is restricted, or on any form/MFT other than Form 941/01. 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).

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 hadn't been delayed. Input TC 181, PRC 014 for the difference. Input TC 971 action code 30X for an audit trail.

If the TC 6X0 has been reversed or transferred in, follow (13) above, but do NOT input TC 971 (it will go unpostable). Fax the completed Form 13287 to:

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:

In some instances, the delayed deposit is received after the return has posted, causing additional penalties and interest. TC 971 won’t reverse any 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.

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).

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

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.

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.

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 hasn’t 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.

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

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.

TC 971 A/C 30X provides information to the FRB so it can assess a penalty on the bank's account.

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 Form 8655, Reporting Agent Authorization. However, this doesn’t allow the third party to act as an "authorized depositary" for the U.S. Treasury.

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 TT&L account. There are no codified penalties that either IRS, Bureau of the Fiscal Service (BFS), or FRB can assess against a reporting agent (third party) who has delayed the submission of the client’s monies to authorized depositaries (because the reporting agent doesn’t have a TT&L account).

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.

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

For general reasonable cause guidelines see IRM 20.1.1, Introduction and Penalty Relief, and IRM 20.1.1-2, Penalty Reason Code Chart.

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 ROFTL schedule must be secured and the penalty recalculated to determine if a penalty is in fact due. If there is no reply to a request for a valid ROFTL, send a no-consideration letter and assess an averaged penalty if an averaged penalty hasn’t been assessed.

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

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 3-2 and 20–1. See IRM 1.2.1.4, Policy Statements for Submission Processing Activities, and IRM 1.2.1.12, Policy Statements for Penalties and Interest Activities.

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

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. If the $100,000 rule causes a change in deposit frequency, the penalty is waived. See IRM 20.1.4.8.6, $100,000/One-Day-Rule.

26 CFR 31.6302-1(c)(6) states that an employer who filed Form 944 for the prior year will be deemed to have timely deposited its ( Form 941) January deposit obligation(s) under 26 CFR 31.6302-1(c)(1) through (4) for the first calendar quarter of the year in which it must file quarterly using Form 941 if the employer deposits the amount of such deposit obligation(s) by March 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 calendar quarter of the year in which a Form 944 filer is returned to filing quarterly using Form 941.

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 calendar 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. Don’t rely on CP 236 and TC 971 A/C 329 issued before 2014; most are incorrect.

26 CFR 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 employer’s employment taxes are accumulated for determining the $100,000 next-day deposit obligation once the liability incurs; the employee’s employment taxes are accumulated once they are withheld. See 26 CFR 31.6302-1(e) and Rev. Rul. 75-191.

Failure to deposit penalty provisions of IRC 6656(e) 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 SERP - Designation of Federal Tax Deposit - Job Aids (irs.gov).

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

TBOR2 also provides that the IRS may abate any penalty for failure to make deposits for the first time if the taxpayer sends a deposit to the IRS instead of to the required 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.