n-99-20.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Electronic Funds Transfer -- Temporary Waiver of Failure to
Deposit Penalty for Certain Taxpayers

Notice 99-20

This notice provides guidance relating to News Release IR-
1999-27, issued March 22, 1999, regarding application of the
$ 6656 failure to deposit penalty to taxpayers currently required
to deposit by electronic funds transfer.

In IR-1999-27, the Internal Revenue Service announced that
beginning July 1, 1999, any taxpayer that is currently required
to deposit federal depository taxes by electronic funds transfer
and that deposited more than $200,000 in aggregate federal
depository taxes during calendar year 1998 will be subject to the
10-percent § 6656 failure to deposit penalty if the taxpayer
fails to make deposits by electronic funds transfer.

The Service will not, however, impose the $ 6656 penalty on
taxpayers that did not deposit more than $200, 000 in aggregate
federal depository taxes during calendar year 1998 solely for the
failure to deposit by electronic funds transfer. This waiver
applies only to deposit obligations incurred after June 30, 1999,
and on or before December 31, 1999. This waiver in no way
affects the waiver announced in Notice 99-12, 1999-9 I.R.B. 44,
covering the period beginning January 1, 1999, and ending June
30, 1999.

BACKGROUND

Section 6302 (h) (1) (A) provides that the Secretary will

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prescribe regulations necessary for the development and
implementation of an electronic funds transfer system for the
collection of depository taxes. Section 6302 (h) (2) provides a
phase-in schedule for the system.

Section 31.6302-1 (h) of the Employment Taxes and Collection
of Income Tax at Source Regulations prescribes rules for
implementing an electronic funds transfer system for the
collection of depository taxes. Under the regulation, taxpayers
are required to deposit taxes by electronic funds transfer if the
amount of their depository taxes in a specified earlier year
exceeds the applicable threshold amount. The regulation provides
that taxpayers with more than $50, 000 of federal employment tax
deposits in calendar year 1995 must use electronic funds transfer
to make deposits that are due on or after July 1, 1997, and
relate to return periods beginning on or after January 1, 1997.
Taxpayers with more than $50, 000 in employment tax deposits in
calendar year 1996 must use electronic funds transfer to make
deposits of taxes that are due on or after January 1, 1998,
relating to return periods beginning on or after January 1, 1998.
Taxpayers with more than $50, 000 in employment tax deposits in
calendar year 1997 must use electronic funds transfer to make
deposits of taxes that are due on or after January 1, 1999,

relating to return periods beginning on or after January 1, 1999.
In addition, under the regulations, taxpayers with no
employment tax deposits in either 1995 or 1996, but with more
than $50, 000 in other federal tax deposits in either 1995 or

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1996, must use electronic funds transfer to make deposits of
taxes that are due on or after January 1, 1998, relating to
return periods beginning on or after January 1, 1998. Taxpayers
with no employment tax deposits in 1997, but with more than
$50, 000 in other federal tax deposits in 1997, must use
electronic funds transfer to make deposits of taxes that are due
on or after January 1, 1999, relating to return periods beginning
on or after January 1, 1999.

Section 6656 (a) provides that in the case of any failure by
any person to deposit taxes on the prescribed date in an
authorized government depository, a penalty applies unless the
failure is due to reasonable cause and not due to willful
neglect. Rev. Rul. 95-68, 1995-2 C.B. 272, provides that, absent
reasonable cause, a taxpayer that is required to deposit federal
taxes by electronic funds transfer is subject to the 10-percent
failure to deposit penalty if the taxpayer deposits the taxes by
means other than electronic funds transfer.

Notice 97-43, 1997-2 C.B. 294, provides that, in the case of
taxpayers first required to deposit electronically on or after
July 1, 1997, the Internal Revenue Service will not impose the
10-percent § 6656 penalty solely for the failure to make the
deposit electronically, provided the deposit is otherwise made in
a timely manner. This waiver applies only to deposit obligations
incurred on or before December 31, 1997.

Section 931 of the Taxpayer Relief Act of 1997, Pub. L. No.
105-34, 111 Stat. 881, provides that no penalty shall be imposed

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under the Internal Revenue Code solely by reason of a failure by
a person to use the electronic fund transfer system established
under § 6302 (h) of the Code if (1) the person is a member of a
class of taxpayers first required to use such system on or after
July 1, 1997, and (2) the failure occurs before July 1, 1998.

Notice 98-30, 1998-22 I.R.B. 9, provides that, in the case
of taxpayers first required to deposit electronically on or after
July 1, 1997, the Internal Revenue Service will not impose the
10-percent § 6656 penalty solely for the failure to make the
deposit electronically provided the deposit is otherwise made in
a timely manner. This waiver applies only to deposit obligations
incurred on or before December 31, 1998.

Notice 99-12 provides that for taxpayers first required to
make federal tax deposits electronically on or after July 1,
1997, the Service will not impose the 10-percent § 6656 penalty
solely for the failure to make those deposits by electronic funds
transfer provided the deposit is otherwise made in a timely
manner. This waiver applies only to deposit obligations incurred
on or before June 30, 1999.

CONTINUED TEMPORARY WAIVER OF PENALTY FOR CERTAIN TAXPAYERS

For taxpayers that did not deposit more than $200,000 in
aggregate federal depository taxes during calendar year 1998, the
Service will not impose the 10-percent $ 6656 penalty solely for
the failure to make deposits by electronic funds transfer.
However, a taxpayer will remain liable for the $ 6656 penalty
(absent reasonable cause) if the taxpayer fails to make a

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required deposit in a timely manner.

This waiver of the 10-percent $ 6656 penalty applies only to
deposit obligations incurred after June 30, 1999, and on or
before December 31, 1999. The penalty waiver includes deposits
made after December 31, 1999, provided the deposit obligation was
incurred on or before December 31, 1999. The penalty waiver
applies to any taxpayer that did not deposit more than $200, 000
in aggregate federal depository taxes during calendar year 1998,
including a taxpayer that was first required to deposit by
electronic funds transfer in 1995 or 1996.

DRAFTING INFORMATION

The principal author of this notice is Vincent G. Surabian
of the Office of Assistant Chief Counsel (Income Tax and
Accounting) . For further information regarding the penalty
waiver, contact Mr. Surabian at (202) 622-4940 (not a toll-free
call) .