SECTION 2. BACKGROUND

.01 Section 6656 provides that in the case of any failure by any person to deposit (as required by the Code or regulations) on the date prescribed any amount of tax in a government depository, there will be imposed upon such person a penalty equal to the applicable percentage of the amount of the underpayment, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The penalty ranges from 2 to 15 percent depending upon the lateness of the deposit.

.02 Revenue Procedure 90–58, 1990–2 C.B. 642, effective for return periods beginning after March 31, 1991, provides that deposits for a return period will be applied in a date-made order against deposit liabilities in a due-date order. Thus, the Service will apply a deposit first to satisfy the oldest past due deposit liability 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.

.03 The rationale underlying Rev. Proc. 90–58 is that it is generally in the best interest of depositors that strive to be compliant to have the oldest deposit liability in the return period satisfied first, thus preventing the penalty rate on that liability from escalating. However, if a depositor inadvertently misses a deposit early in a return period but makes all succeeding deposits on a timely basis, the result can be multiple failure-to-deposit penalties.

.04 Notice 98–14, 1998–8 I.R.B. 27, provides an interim procedure that taxpayers may use to request abatement of the failure-to-deposit penalty imposed by § 6656 when the deposit liabilities against 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. Under that notice, taxpayers that wish to request relief are instructed to call the toll-free number shown on the penalty notice. Notice 98–14 applies with respect to return periods beginning after December 31, 1997.

1999–2 I.R.B 11 January 11, 1999

.05 Section 3304(a) of the RRA added new § 6656(e), which permits a taxpayer receiving a penalty notice (with respect to any deposit of tax made for a specific tax return period) to designate, during the 90day period beginning on the date of a penalty notice, the deposit period or periods within the return period to which a deposit of tax shall apply. Pursuant to § 3304(d)(1) of the RRA, § 6656(e) is effective for federal tax deposits required to be made after January 18, 1999 (180 days after the July 22, 1998, enactment of the RRA).