Part III. Administrative, Procedural, and Miscellaneous

transfer. In addition, a taxpayer that deposits employment taxes but never exceeds $50,000 a year in employment tax deposits is not currently required to use electronic funds transfer even if its deposits of other taxes have exceeded $50,000 per year. The Service and Treasury Department intend to develop regulations that will address these matters. At this time, two options are being considered.

The first option would be a twopronged test. If during a calendar year determination period the taxpayer deposits more than $50,000 of the employment taxes imposed by chapters 21, 22, and 24, or more than $50,000 of other depository taxes, the taxpayer becomes subject to the requirement to deposit electronically in the second succeeding calendar year.

The second option would be an aggregate deposits test. If during a calendar year determination period the taxpayer’s aggregate deposits of all depository taxes exceed $50,000, the taxpayer becomes subject to the requirement to deposit electronically in the second succeeding calendar year.

The Service and Treasury Department invite public comment on these two options and also welcome any suggestions for a different future rule. Comments and suggestions are requested by October 10, 1997. An original and eight copies of written comments should be sent to:

Electronic Funds Transfer — Temporary Waiver of Failure-To- Deposit Penalty for Certain Tax- payers and Request for Com- ments on Future Guidance

Notice 97–43

This notice provides guidance relating to the waiver of penalties announced in News Release IR–97–32, issued June 2, 1997. In IR–97–32, the Internal Revenue Service announced that it will waive the failure to deposit penalty under § 6656 of the Internal Revenue Code for certain taxpayers first required to make federal tax deposits by electronic funds transfer on or after July 1, 1997. This notice also requests comments regarding possible alternatives for future amendments to § 31.6302–1(h) of the Employment Ta x e s and Collection of Income Tax at Source Regulations with respect to the requirement to deposit by electronic funds transfer for periods beginning after 1999.

Background

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

Section 31.6302–1(h) 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. For example, a corporation to which this rule applies, and which files its income tax returns on a calendar year basis, must use electronic funds transfer to make corporate and estimated income tax deposits that are due on or after July 1, 1997. Therefore, the corporation’s September

15, 1997, and subsequent estimated tax payments must be made by electronic funds transfer.

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.

Temporary Waiver of Penalty for Certain Taxpayers

Although taxpayers with more than $50,000 of federal employment tax deposits in calendar year 1995 are required to make federal tax deposits electronically on and 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. However, a taxpayer will remain liable for the failure to deposit penalty under § 6656 (absent reasonable cause) if the taxpayer fails to make a required deposit (using either electronic funds transfer or paper coupons) in a timely manner.

This waiver of the failure to deposit penalty applies only to deposit obligations incurred on or before December 31, 1997. The penalty waiver includes deposits made after December 31, 1997, so long as the deposit obligation was incurred on or before December 31, 1997.

This waiver of the failure to deposit penalty does not apply to taxpayers that were required to begin using electronic funds transfer in 1995 or 1996.

Request for Comments on Future Guidance

Under § 31.6302–1(h), taxpayers that are not currently required to use electronic funds transfer must begin making federal tax deposits electronically in 1999 if they exceed a $50,000 threshold in 1997. Currently, § 31.6302–1(h) provides no requirement that a new or growing taxpayer that exceeds $50,000 in annual deposits only after 1997 use electronic funds

incurred on or before December 31, 1997. Internal Revenue Service

transfer system for the collection of de The penalty waiver includes deposits Attn: CC:DOM:CORP:R

pository taxes. Under the regulation, tax made after December 31, 1997, so long as Room 5228 (IT&A:Br4)

payers are required to deposit taxes by

the deposit obligation was incurred on or P.O. Box 7604

electronic funds transfer if the amount of

before December 31, 1997. Ben Franklin Station

their depository taxes in a specified ear This waiver of the failure to deposit Washington, DC 20044,

lier year exceeds the applicable threshold

penalty does not apply to taxpayers that or hand delivered between the hours of

amount. The regulation provides that tax were required to begin using electronic 8:00 a.m. and 5:00 p.m to:

payers with more than $50,000 of federal

funds transfer in 1995 or 1996. Courier’s Desk

employment tax deposits in calendar year 1995 must use electronic funds transfer to Internal Revenue Service

Request for Comments on Future Guidance

make deposits that are due on or after July Attn: CC:DOM:CORP:R 1, 1997 and relate to return periods begin- Under § 31.6302–1(h), taxpayers that Room 5228 (IT&A:Br4) ning on or after January 1, 1997. For ex- are not currently required to use elec- 1111 Constitution Ave., NW ample, a corporation to which this rule tronic funds transfer must begin making Washington, DC applies, and which files its income tax re- federal tax deposits electronically in 1999 A l t e r n a t i v e l y, comments may be submitturns on a calendar year basis, must use if they exceed a $50,000 threshold in ted electronically via the Service’s Interelectronic funds transfer to make corpo- 1997. Currently, § 31.6302–1(h) provides net site at “http://www. i r s . u s t r e a s . rate and estimated income tax deposits no requirement that a new or growing tax- gov/prod/tax_regs/comments.html”. A l l that are due on or after July 1, 1997. payer that exceeds $50,000 in annual de- comments will be available for public inTherefore, the corporation’s September posits only after 1997 use electronic funds spection and copying in their entirety.

1997–30 I R B 9 July 28 1997

.05 The two primary payment options in EFTPS are an Automated Clearing House (ACH) debit entry and an ACH credit entry. Taxpayers may also use the Electronic Ta x Application (ETA) to accommodate their business requirements and meet their FTD and FTP obligations. These payment options are described in sections 7, 8, and 9 of this revenue procedure.

.06 Taxpayers participating in EFTPS must ensure that their funds are remitted on a timely basis. See § 31.6302–1(h)(8) for rules regarding when an FTD remitted by EFT is deemed made. In the case of FTPs remitted by EFT, see § 31.6302–1(h)(9) for rules regarding when the tax is deemed paid.

.07 A taxpayer required by regulations to make an FTD by EFT may not use Form 8109, Federal Tax Deposit Coupon, to make an FTD. If the taxpayer is unable to make a timely FTD using an ACH debit entry or an ACH credit entry, the taxpayer may use ETA to make a timely FTD. If a taxpayer is a voluntary participant in EFTPS ( i . e ., a participant not required by regulations to make an FTD by EFT) and is unable, for any reason, to make an FTD using EFTPS or chooses not to use EFTPS to make an FTD, the taxpayer may make a timely FTD by using Form 8109.

.08 If an FTD is late, the taxpayer is subject to the penalty for failure to timely deposit unless the taxpayer establishes reasonable cause for that failure. See Rev. Rul. 94–46, 1994–2 C.B. 278.

.09 EFTPS does not change the computation of tax liability, interest or penalties, or FTD or FTP due dates.

304-263-8700

Information Returns FAX Machine:

Electronic Filing:

Between 8:30 a.m. and 4:30 p.m. Eastern Time

Monday through Friday

Telecommunication Device forthe Deaf (TDD) :

304-267-3367

304-264-5602

(IRP–BBS) (Asynchronous)

304-264-7070

Mainframe Filing (Bisynchronous Filing) 4.8 Modems 304-264-7080 9.6 Modems 304-264-7040 14.4 Modems 304-264-7045

HOURS OF OPERATION —

24 HOURS ADAY 7 DAYS AWEEK

This is the end of Publication 1220 for Tax Year 1997.

1997–30 I R B 84 July 28 1997