IRS Overview and General

20.1.4.1  (05-22-2009)
Overview and General

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

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

  3. See Exhibit 20.1.4-1 for a list of the applicable forms related to the FTD penalty.

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

    1. IRC 6656 provides relief from the FTD penalty for non-compliance if the taxpayer can show that the failure to deposit was due to reasonable cause and not willful neglect. It is important to note that the relief from the penalty due to reasonable cause does not make a non-compliant taxpayer compliant with his/her deposit requirements, but rather relieves the taxpayer of the penalty despite his/her failure to deposit.

    2. IRC provisions for removal of the FTD penalty due to reasonable cause are expanded in Policy Statements. Other statutory and/or administrative provisions may also apply to allow penalty relief. See IRM 20.1.4.16 for penalty relief provisions specific to the FTD penalty and IRM 20.1.1, Introduction and Penalty Relief for general discussions of penalty relief criteria.

  5. Penalties are primarily an enforcement action and secondarily an educational tool. As such, the assertion or the removal of penalties is not to be taken lightly. There should be no assumption that penalty assessments have been made because of Service error or that penalties should be removed just because the taxpayer asked.

20.1.4.1.1  (05-22-2009)
Criteria for Reporting Tax and ROFT Information

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

    1. report their tax liability,

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

    3. indicate the date during the return period on which each liability was incurred.

      Exception:

      However, taxpayers whose total liability is below the deposit threshold are not required to indicate the date each liability was incurred. In fact, the form instructions specifically instruct these taxpayers to leave the summary of federal tax liability blank.

  2. In addition to reporting the total tax liability incurred within the tax return period, the taxpayer must provide a valid periodic breakdown of its tax liability (see Exception above). This periodic breakdown is generally referred to as the Record of Federal Tax Liability (ROFT). This liability information is requested in various formats on the different employment tax returns. For example, a monthly schedule Form 941 depositor reports its monthly liability amounts on page 2 of Form 941, whereas the semi-weekly schedule Form 941 depositor is required to report its daily liability amounts on Schedule B ( Form 941).

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

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

20.1.4.1.2  (05-22-2009)
Notice Information

  1. As a return is processed, various computer codes are added to the return data. These codes are written on the return by Code and Edit function or they are systemically generated by the computer program from the input of the tax data shown on the return. See IRM 20.1.4.11.2.5 to determine whether the FTD Penalty issue will be:

    • manually reviewed, calculated, assessed, or

    • systemically assessed.

  2. Some of the notices related to the FTD program are internal notices, which require a mandatory review of an account:

    • CP 194 Notice—Issued for manual review because Master File does not have enough information to determine if the FTD Penalty applies.

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

  3. Notices issued directly to taxpayers, which require a response:

    • CP 207 Notice—Issued to request a valid ROFT, to notify taxpayer due to a missing, incomplete, inaccurate or illegible ROFT and of the impending proposed averaged FTD Penalty that may result if the requested ROFT is not received.

    • CP 207L Notice—Issued to request a valid ROFT on "Large Dollar" Proposed FTD Penalty notices of $75,000 or more. Note: The Ogden or Cincinnati Large Corp Technical Unit (LCTU), in advance of the CP 207L notice mail-out, will attempt to secure the corrected ROFT via telephone contact. If the corrected ROFT is secured, the CP 207L is voided and corrective action taken by the LCTU technician.

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

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

20.1.4.1.3  (05-22-2009)
Authorized Depositary

  1. Generally, taxpayers who file Forms 941, 943, 944, 940, 945, 720, 1042, and CT–1 must deposit taxes with an authorized depositary when the tax liability reaches certain dollar amounts. See IRM 20.1.4.2.2.1 for additional information. However, Form 720 filers are liable for deposits of only certain excise taxes. See IRM 20.1.4.8 for additional information.

  2. Under the Federal Tax Deposit (FTD) system, a taxpayer is required to deposit taxes with an authorized financial institution designated as a depositary for federal taxes. Taxpayers can contact their area Federal Reserve Bank (FRB) to get a listing of local authorized financial institutions. If the taxpayer cannot locate an FRB, refer the taxpayer to a number listed below.

    • IRS Business & Specialty Tax Line 1–800–829–4933.

    • Telecommunications Device for the Deaf (TDD) 1–800–829–4059.

  3. Effective January 1, 2001, FRBs no longer accept FTD coupons. All other authorized financial institutions continue to accept FTD coupons. Some deposits made by mail are considered timely if the taxpayer establishes it was mailed in the U.S. at least two days before its due date. See IRM 20.1.4.1.3.6 for more information on depositing by mail. Payments of this type must be by check, postal money order, or cashiers check, payable to "Financial Agent" . Any third party check sent to the Financial Agent must be endorsed by the taxpayer.

  4. Payments made directly to the IRS or to an unauthorized institution can result in the failure to deposit penalty.

  5. For information on Campus pipeline processing of Federal Tax Deposit payments, see IRM 3.5.17, Federal Tax Deposit System.

  6. Monies are sent by authorized depositaries to the U.S. Treasury. Deposit information is sent to one of the following Processing Sites by depositaries:

    • Austin Campus

    • Cincinnati Campus

    • Ogden Campus


20.1.4.1.3.1  (05-22-2009)
Electronic Funds Transfer (EFT)

  1. Legislation passed in 1993 requires certain taxpayers to make their deposits via an electronic funds transfer (EFT) system. This system allows for the electronic transfer of funds from taxpayer accounts and the conveyance of deposit information directly to the U.S. Treasury.

  2. A taxpayer must begin depositing electronically on January 1 of the year it becomes required to deposit via EFT. This "required" year is based on the taxpayer’s total deposits of certain taxes exceeding a prescribed dollar threshold during the "determination " period.

    1. Initially, the requirement to deposit electronically is based on an analysis of the total deposits of employment taxes imposed by IRC Chapter 21, Federal Insurance Contribution Act, Chapter 22, Railroad Retirement Tax Act, and Chapter 24, Collection of Income Tax at Source on Wages. See IRM 21.7.1.4.8.1, EFTPS Deposit Requirements, for threshold amounts, determinations periods and applicable effective dates.

    2. Once a taxpayer meets the threshold and is required to deposit electronically:
      (i)  All taxes required to be deposited by that taxpayer must be deposited electronically (not just the taxes considered in the determination analysis), and
      (ii) This taxpayer can no longer use coupons or any other means to deposit without being subject to the failure to deposit penalty, referred to as the avoidance penalty.

  3. Deposits made electronically use the Automated Clearing House (ACH) financial network, which transfers funds and passes tax payment information to IRS. ACH is the banking industry’s system for moving payments electronically between financial institutions (for EFTPS purposes, between financial institutions and the U.S. Treasury).

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

    1. Taxpayers' can make payments directly through EFTPS by instructing the U.S. Treasury’s financial agent to originate an ACH Debit transaction against his/her/its bank account or

    2. The taxpayer can instruct Treasury’s financial agent to originate an ACH debit entry to a specifically identified bank account or instruct his/her/its financial institution to debit his/her/its account to the U.S. Government’s financial institution.

    3. Same-day Settlement Deposits are also available. See IRM 20.1.4.1.3.3.

  5. There are no new penalties or changes to the basic deposit rules inherent in using EFT. Taxpayers are penalized for not depositing on time, in the correct amount, or in the manner required.

    1. EFT has been added as an additional required deposit method.

    2. Previously, specific payments were charged the avoidance portion of the FTD penalty for failure to use the FTD system (not using a coupon).

    3. A taxpayer required to deposit electronically will be assessed this same avoidance portion of the FTD penalty for failing to deposit electronically (not depositing in the required manner).

20.1.4.1.3.2  (05-22-2009)
Electronic Federal Tax Payment System (EFTPS)

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

  2. Effective November 14, 2004, Bank of America is the sole financial institution authorized to operate EFTPS as a U.S. Treasury financial agent.

    1. Bank of America (formerly National Bank), and its primary subcontractor Gov One Solutions (subsidiary of First Data Corporation), are identified as Bank of America throughout this document.

    2. Prior to November 14, 2004, First National Bank of Chicago was authorized to operate EFTPS as a U.S. Treasury financial agent.

  3. Before any funds can be transferred electronically, the taxpayer must be enrolled in EFTPS. Taxpayers are directed to call the financial agents for assistance on EFTPS.

  4. Bank of America assistance numbers are:

    • 1–800–555–4477 (voice)

    • 1–800–555–8778 EFTPS-OnLine

    • 1–800–244–4829 (Spanish)

    • 1–800–733–4829 (TDD)

    • 1–800–605–9876 for financial institutions

    • 1–877–333–8292 FEDTAXII

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

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

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

  8. Reference IRM 21.7.1.4.8.1, Electronic Federal Tax Payment System on requesting payment research information.

20.1.4.1.3.3  (05-22-2009)
Same Day Settlement/
FEDWIRE/ETA

  1. This funds-transfer system is owned and operated by the Federal Reserve Banks (FRB) and is used primarily for the transmission and settlement of payment orders, the same day. Financial institutions use the FRB (Minneapolis) to transfer directly into the U.S. Treasury’s General Account.

  2. FEDWIRE has been operational for many years. IRS required the use of FEDWIRE for certain types of deposits (e.g., certain CT–1 deposits) to move large sums immediately into the U.S. Treasury’s General Account (same day settlements).

  3. Because ACH is a two-step process (initiate the instructions one day, the money actually moves the next), some taxpayers (e.g. $100,000 depositors) had difficulty making timely deposits. If taxpayers missed the ACH cut-off time to initiate a timely deposit, they could use the FRB (Minneapolis) FEDWIRE as a deposit option.

  4. As the systems have evolved, the same day settlement feature is now referred to as the Electronic Tax Application (ETA).

  5. Enrollment in EFTPS automatically enrolls the taxpayer to use ETA as a routine payment option and as a backup payment method.

    1. Taxpayers enrolled in EFTPS can initiate a same-day payment using the ETA payment instructions located in the EFTPS Payment Instruction Booklet.

  6. A Business taxpayer who requires a same-day settlement and who is not currently enrolled in the EFTPS system will need to assist in directing its financial institution to the proper format for making the payment.

    1. All same-day payments are sent to the Minneapolis Federal Reserve Electronic Tax Application (FR-ETA) by the business taxpayer’s financial institution. Financial institutions have two Fedwire options for making a same-day federal tax payment. It is important that its bank use the proper format. The taxpayer’s financial institution will need to follow guidelines in the most current procedures outlined In Making Same-day Federal Tax Payments. Guidelines for Financial Institutions can be obtained at http://www.frbservices.org/Treasury/pdf/Sameday.pdf .

    2. FEDWIRE Funds Transfer begins daily operations at 12:30 a.m. Eastern Time (ET). The current hours for FR-ETA processing are 8:30 a.m. to 5:00 p.m. ET. Same-day federal payment transactions sent after 12:30 a.m. and before 8:30 a.m. ET are queued for processing when FR-ETA opens for the day. Tax payments sent AFTER the 5:00 p.m. ET cutoff, are rejected and NOT processed the next day. It is recommended that financial institutions transmit the transaction well in advance of the cutoff. Taxpayers should make arrangements to have their financial institution notify them immediately if a payment is rejected and returned, so that the transaction can be corrected and resubmitted before the 5:00 p.m. ET cut-off.

  7. FR-ETA payments are identified by payment method 3 or 4 in the second position of the EFT number. However, since early in 2004, the payment was only identified by method 3 in the second position of the EFT number.

  8. Taxpayers may call the FR-ETA Toll-free Customer Service number at 1-800-382-0045 for assistance in making their payment or in resolving problems with their FR-ETA payment.

20.1.4.1.3.4  (05-22-2009)
Federal Tax Deposit Coupons

  1. When employers request an Employer Identification Number (EIN) or indicate that they will be paying employees, they are pre-enrolled in the Electronic Federal Tax Payment System (EFTPS) as part of our express enrollment initiative for new businesses and will subsequently receive a confirmation package with an EFTPS PIN and instructions on how to activate the EFTPS enrollment, and one FTD coupon, Form 8109. For further information on express enrollment go to http://www.irs.gov/pub/irs-pdf/p4275.pdf . If the taxpayer decides to make payments deposits with Form 8109, they must order additional coupons by calling 1-800-829-4933, and should allow 5-6 weeks for coupons to arrive by mail.

    1. Though employers should be encouraged to use the coupon books, if a taxpayer does not have a Form 8109 when a deposit is due, a blank over-the-counter coupon ( Form 8109 B) may be obtained from an Area Office or Campus.

    2. When a Form 8109 B is requested, the taxpayer’s name and Taxpayer EIN must be manually entered on the form by the dispensing IRS office. This form requests the same information as the Form 8109 (i.e., MFT, Tax Period, amount of deposit).

  2. AUTOGEN

    1. The FTD Coupon Book contains, on the sixth and seventh coupon, Form ID Number "91 and 92." These special ID numbers systemically activate a reorder request of an FTD Coupon Book.

    2. When the "91" and/or "92" has been input, Transaction Code 016 posts to the taxpayer’s account, and the computer does an analysis to determine whether or not to generate the FTD reorder request. The decision is based on the FTD posting activity on the most recent tax accounts.

    3. The FTD ADDRESS FORM ( Form 8109-C) is included in the FTD Coupon Book. Taxpayers should complete the form and submit it to the Campus to request that FTD Coupon Books be sent to a different mailing address. The FTD Coupon Book no longer contains the FTD "REMINDER" Form. In its place is the additional FTD Coupon that increased the number of FTD Coupons from 23 to 24 per book. The FTD Database has been expanded to include the "Date the FTD Coupon Book was generated."

20.1.4.1.3.5  (05-22-2009)
Depositing at an Authorized depositary (Immediate Credit Item)

  1. Taxpayers not required to deposit via EFTPS may deliver their deposit to an authorized depositary using an FTD payment coupon. An authorized depositary is a financial institution (for example, a commercial bank) that is authorized to accept federal tax deposits.

  2. Immediate credit Item - Authorized depositaries must accept cash, a postal money order, Treasury Bill, or a certified or Cashier’s check drawn to the order of the depositary, or a check or draft drawn on and to the order of the depositary. Deposits made using any of the above payment methods are considered immediate credit items as of the date the deposit is remitted to the depositary.

    Note:

    To be considered timely, the funds must be available to the depositary on the deposit due date before the institution's daily cutoff deadline.

  3. Other than an immediate credit item- An authorized depositary is not required, but may accept a check drawn on another financial institution, but it is not considered an immediate credit item as of the date the deposit is remitted to the depositary. The FTD is not marked received until the day funds are collected by the depositary.

  4. See IRM 20.1.4.14 for information to resolve deposit date problems.

20.1.4.1.3.6  (05-22-2009)
Depositing by Mail to an Authorized depositary (Timely Mailed/Timely paid Provision)

  1. Taxpayers not required to deposit via EFTPS, may deposit by mail. The Internal Revenue Code (IRC section 7502(e)) provides conditions for timely mailed/timely paid FTDs.

  2. Consider the deposit as timely, regardless of the "received date-stamp" , if a taxpayer meets the following conditions:

    1. The taxpayer proves that the deposit was mailed in the U.S. at least two days before the due date,

    2. the depositary that received the FTD is an authorized depositary in the taxpayer’s geographic location, and

    3. the deposit is under $20,000, for taxpayers required to deposit more than once a month.

  3. The timely mailed/timely paid provision does not apply when:

    1. the taxpayer mails the deposit to an IRS campus,

    2. the payment is not an immediate credit item or,

    3. the deposit is not mailed in the U.S.

  4. To meet timeliness requirements, foreign employers must:

    1. make arrangements with a U.S. depositary to accept the taxpayer’s wire transfer of deposit and prepare an FTD coupon for the customer on or before the deposit due date, or

    2. mail the FTD coupon and a payment instrument in U.S. dollars, to an authorized depositary to arrive on or before the deposit due date.

  5. See IRM 20.1.4.14 for information to resolve deposit date problems.

20.1.4.1.3.7  (05-22-2009)
Coupon and Payment Mailed to: Financial Agent, Federal Tax Deposit Processing

  1. A deposit can be made by mailing the coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. A check or money order should be made payable to "Financial Agent."

20.1.4.1.4  (05-22-2009)
Who Assesses

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

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

20.1.4.1.5  (05-22-2009)
Restrictions on Assessments (LEM Criteria)

  1. For information regarding restrictions on assessment, see LEM 20.1.4.1.5.

20.1.4.1.5.1  (05-22-2009)
Federal Agencies

  1. According to Policy Statement 2–4, the IRS does not assert penalties against Federal Agencies. See IRM 1.2.20.1.2.

  2. These types of agencies are marked with an employment code" F" on the entity module.

20.1.4.1.5.2  (05-22-2009)
State and Local Health and Welfare

  1. The IRS determined that the state and local government Health and Welfare agencies, acting as agents under IRC section 3504 with respect to employers for in-home domestic services for recipients of public assistance, are not subject to Federal tax deposit requirements. They need only to make payments by the due date of the return. Payment(s) does not have to be deposited.

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

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

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


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