Rev. Proc. 66-31

SECTION 1. PURPOSE.

The purpose of this issuance is to provide a transitional procedure for use by certain employers to avoid the penalty imposed by section 6656 of the Internal Revenue Code of 1954 with respect to deposits for any semimonthly period in the months of June, July, August, and September 1966.

SEC. 2. BACKGROUND.

.01 An amendment to section 31.6302(c)-1 of the Employment Tax Regulations, which revised the rules for the deposit of certain employment taxes, was published as Treasury Decision 6884 of certain Federal Register for May 17, 1966, C.B. 1966-1, 274. The amendment, which is effective with respect to wages paid during June 1966 and subsequent calendar quarters, requires special deposits on a semimonthly basis of Federal Insurance Contributions Act taxes and withheld income taxes by employers who had more than $4,000 of such taxes for any month of the preceding calendar quarter. Such taxes on wages paid in a semimonthly period must be deposited within three banking days after the 15th and the last day of each month.

.02 The regulations further provide that an employer will be considered to have met the requirements for a semimonthly period if-

1. (a) His deposit for such semimonthly period is not less than 90 percent of the aggregate amount of the taxes for such period; or

(b) His deposit for each semimonthly period in the month is not less than 45 percent of the aggregate amount of the taxes for the month (this option is not available to an employer who normally pays more than 75 percent of his wages in the first semimonthly period of each month); and

2. In the case of either option, any underpayment for the month must be deposited within three banking days after the 15th day of the following month, except the underpayment for the last month of the calendar quarter shall be deposited or paid by the end of the following month.

SEC. 3. TRANSITIONAL PROCEDURE.

.01 Certain employers may need more time to make an orderly transition to the new requirements for deposit on a semimonthly basis. In addition to the `45 percent monthly' and `90 percent semimonthly' compliance tests in the regulations, there is provided in paragraph .02, below, an alternative test which may be used with respect to semimonthly deposits for June, July, August, and September 1966.

.02 A penalty under section 6656 of the Code will not be imposed on an employer who fails to meet the requirements of the new regulations as to the amount to be deposited for any semimonthly period in the months of June, July, August, and September 1966, if-

1. His deposit for each semimonthly period in the month is not less than 50 percent of the aggregate of the taxes for the preceding month; and

2. (a) Any underpayment for July or August is deposited within three banking days after the 15th day of the following month, or

(b) Any underpayment for June or September is paid with the quarterly return, Form 941, or separately deposited on or before the last day of the following month.

This transitional provision is not available to employers who normally pay more than 75 percent of their wages in the first half of the month.

¹ Based on Technical Information Release 820, dated May 17, 1966.