Penalty for failure to deposit taxes under CARES Act (Chief Counsel legal advice memo)

Failure to deposit penalty on employment tax deferral when only a portion is late

Failure to deposit penalty on employment tax deferral when only a portion is late

The IRS publicly released a legal advice memorandum* (from the Office of the Chief Council) regarding a failure to deposit penalty on employment tax deferral when only a portion is late.

*Legal advice memoranda are signed by executives in the National Office of the Office of Chief Counsel and issued to Internal Revenue Service personnel who are national program executives and managers. The memos are issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. The memos cannot be used or cited as precedent.

PMTA-2021-07 [PDF 131 KB] (dated June 21, 2021)

The issues presented in the memo are:

  • If any portion of an employer’s section 3111(a) (employer portion of social security) taxes or so much of the taxes imposed under section 3221(a) as are attributable to the rate in effect under section 3111(a), the payment and deposit due dates of which are deferred under CARES Act section 2302, is not deposited by the applicable installment due date, is the deferral of the deposit due date invalidated for all of the employer’s deferred section 3111(a) or 3221(a) tax, rather than just the remaining delinquent portion?
  • Is the result that the section 6656 penalty for failure to deposit taxes is applicable to the entire deferred amount, assuming that no exception to the penalty applies?

In the memo, the IRS concluded:

Yes to both issues. CARES Act section 2302(a)(2) conditions the deferral of deposits on the timely deposit of all amounts deferred by the applicable due dates of December 31, 2021 and December 31, 2022. For example, if an employer defers the deposit of its portion of the section 3111(a) tax (the employer’s portion of social security tax) in the amount of $50,000, and deposits and pays $25,000 on December 31, 2021 but fails to make any additional deposits or payments by December 31, 2022, the employer is liable for a section 6656 penalty on the entire $50,000 if no exception to the penalty applies.

 

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