Relief from multiple failure-to-deposit penalties.

• Author: Josephs, Stuart R.
• Position: Tax penalties - Brief Article

IRS Notice 98-14 provides an interim procedure that taxpayers may use to request abatement of the failure-to-deposit penalty imposed by Sec. 6656 when the manner in which the Service applies deposits, as set forth in Rev. Proc. 90-58, produces multiple failure-to-deposit penalties as a result of a single failure to deposit.

Background

Sec. 6656 provides that, in the case of a failure to deposit a tax on the prescribed date in a government depository, unless it is shown that the failure is due to reasonable cause and not willful neglect, a penalty equal to the applicable percentage of the underpayment. This penalty ranges from 2 to 15%, depending upon the deposit's lateness.

Rev. Proc. 90-58, effective for deposit liability periods beginning after Mar. 31, 1991, provides that deposits will be applied in date-made order against deposit liabilities in due-date order. Thus, a deposit will be applied first to satisfy the oldest past due underdeposits within the same return period. Other credits to the taxpayer's account (such as an overpayment from the previous return period) will be similarly applied.

Rev. Proc. 90-58 was issued as a result of changes made to Sec. 6656's failure-to-deposit penalty by the Revenue Reconciliation Act of 1989, under which the penalty...