Rev. Rul. 75-191

Advice has been requested as to the application of the penalty prescribed by section 6656 of the Internal Revenue Code of 1954 for failure to deposit taxes in the situations described below.

Situation (1). Employer X did not withhold any income or FICA taxes from amounts paid to his employees and did not make any deposits of taxes. It was later determined that taxes should have been withheld and deposits made.

Situation (2). Employer Y withheld FICA and income taxes on a portion of the remuneration paid to his employees and made timely deposits of the taxes. It was later determined that taxes should have been withheld and deposited on the full amount of remuneration instead of only a portion.

Situation (3). Employer Z properly withheld FICA and income taxes from wages paid to his employees, but either did not make the required deposits at all or was late in making deposits.

Section 6302(c) of the Code provides for the use of Government depositaries to receive any tax imposed under the internal revenue laws in such manner, at such times, and under such conditions as the Secretary of the Treasury or his delegate may prescribe.

Section 31.6302(c)-1 of the Employment Tax Regulations provides that employee tax withheld under section 3102 of the Code (employee's share of FICA tax), employer tax under section 3111 of the Code (employer's share of FICA tax), and income tax withheld under section 3402 of the Code are required to be deposited.

Section 6656 of the Code provides that in case of failure by any person to make a timely deposit of tax imposed under the Internal Revenue Code unless such failure is due to reasonable cause and not to willful neglect, there shall be imposed upon such person a penalty of 5 percent of the amount of the underpayment. Underpayment means the excess of the amount of the tax required to be deposited over the amount, if any, deposited on or before the date prescribed therefor.

The conclusions set forth below apply the foregoing rules to the factual situations presented above.

Situations (1) and (2). The failure to deposit penalty imposed by section 6656 of the Code does not apply in case of failure to deposit FICA and income taxes which should have been withheld from compensation paid to employees, but which were not withheld. As defined in section 31.6302(c)-1 of the regulations, the taxes required to be deposited are those taxes which were withheld, together with any employer tax imposed by the Federal Insurance Contributions Act. Accordingly, Employers X and Y are each subject to a penalty only on the amount of underpayment of the employers' share of FICA tax for failure to deposit this tax on or before the prescribed deposit date, unless each establishes reasonable cause for such failure.

Situation (3). Employer Z is subject to the failure to deposit penalty of 5 percent of the amount of the combined employer tax and employee taxes which were withheld and required to be deposited but which were either not deposited or deposited late, unless such failure is due to reasonable cause.

The penalties provided by sections 6651, 6652(b), 6653(b) and 6672 of the Code may also be applicable in the foregoing situations.