[Federal Register Volume 66, Number 33 (Friday, February 16, 2001)]
[Proposed Rules]
[Pages 10650-10653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1120]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 40

[REG-106892-00]
RIN 1545-AX11


Deposits of Excise Taxes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
requirements for excise tax returns, payments, and deposits. These 
regulations affect persons required to report liability for excise 
taxes on Form 720, ``Quarterly Federal Excise Tax Return.''

DATES: Written and electronic comments and requests for a public 
hearing must be received by May 17, 2001.

ADDRESSES: Send submissions to: CC:M&SP:RU (REG-106892-00), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to: CC:M&SP:RU (REG-106892-00), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. Alternatively, taxpayers may send submissions 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or directly to the IRS Internet site at http://
www.irs.gov/tax__regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Concerning submissions, Guy Traynor, 
(202) 622-7180; concerning the regulations, Susan Athy (202) 622-3130 
(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Excise Tax 
Procedural Regulations (26 CFR part 40) relating to the requirements 
for excise tax returns, payments, and deposits. On January 7, 2000, an 
advance notice of proposed rulemaking was published in the Federal 
Register (65 FR 1076) that invited comments from the public on issues 
relating to the requirements for excise tax returns and deposits. 
Several written comments were received that were considered in drafting 
these proposed regulations.
    The advance notice requested comments on: whether there should be a 
single deposit date for all excise taxes (other than those deposited 
under the alternative method), such as 14 days after the end of the 
semimonthly period; whether a taxpayer should be required to deposit 
only 95 percent of tax liability incurred for the semimonthly period 
(in lieu of the current requirement of 100 percent with safe harbor 
rules); and whether the amount required to be deposited for a quarter 
should be computed without reduction for the amounts of any claims made 
on Schedule C of the Form 720 for that quarter.
    In general, commentators from the air transportation industry 
requested that the one-month filing extension provided to those 
reporting communications, air transportation, and ozone-depleting 
chemical taxes be retained because airlines need additional time to 
determine the proper amount of tax liability. The IRS and Treasury 
believe the need for additional time is adequately addressed by the 
retention of the alternative method for making deposits of 
communications and air transportation taxes. Filers choosing to use the 
alternative method for making deposits of these taxes also are allowed 
additional time to determine the amount of tax liability. For example, 
under the alternative method, the activity for December, January, and 
February is reported as tax liability for January, February, and March 
on the Form 720 due April 30th. Thus, even without the one-month filing 
extension, filers reporting under the alternative method have two 
months after the last activity to determine the amount of tax liability 
to be reported. In addition, retention of an extended filing date for 
certain industries would be inconsistent with the simplification and 
overall fairness sought to be achieved by these changes. Accordingly, 
the proposed amendments eliminate the one-month filing extension that 
is now allowed for returns related to taxes imposed by chapter 33 
(relating to communications and air transportation) and section 4681 
(relating to ozone-depleting chemicals) and require that all Forms 720 
be filed by the last day of the month following the quarter for which 
the return is made.
    Commentators generally supported a single deposit date for all 
taxes other than those deposited under the alternative method (regular 
method taxes). The proposed amendments provide that deposits for 
regular method taxes for a semimonthly period are due by the 14th day 
of the following semimonthly period. The proposed amendments change the 
requirement to deposit by class of tax. The 9-day rule, 14-day rule, 
and 30-day rule taxes are eliminated. Instead there are two classes: 
regular method and alternative method.
    Commentators generally supported a reduction in the amount of the 
required deposit for a semimonthly period from 100 percent of net tax 
liability to 95 percent of net tax liability. However, they requested 
that the look-back quarter safe harbor rule be retained. One 
commentator noted that the look-back quarter safe harbor rule is easy 
for taxpayers to use and provides a way for taxpayers to meet the 
deposit requirements when taxpayers have not determined their liability 
for the current semimonthly period. Finally, some commentators 
requested that the provisions allowing deposits to be reduced by 
Schedule C claims be retained to avoid economic hardship. The proposed 
amendments adopt the suggestions of these commentators.
    The proposed amendments require the deposit of at least 95 percent 
of net tax liability incurred during the semimonthly period. This rule 
replaces both the requirement to deposit 100 percent of net tax 
liability and the safe harbor rule for taxpayers depositing 95 percent 
of their current liability. The new requirement is, in fact, more 
generous than the current safe harbor,

[[Page 10651]]

which applies only if the 95-percent deposit requirement is met for 
each semimonthly period in the quarter. Under the proposed amendments, 
a taxpayer that deposits 95 percent of net tax liability for a 
semimonthly period will satisfy the deposit requirement for that period 
even if less than 95 percent of net tax liability is deposited for one 
or more of the other semimonthly periods in the quarter.
    The proposed amendments retain the look-back quarter liability safe 
harbor rule for taxpayers depositing taxes that were in effect during 
the look-back quarter. The proposed amendments to the deposit 
requirements and the safe harbor rule apply to all excise tax deposits, 
including deposits made under the alternative method. Finally, the 
proposed amendments continue to allow deposits to be reduced by 
Schedule C claims.

Proposed Effective Date

    The regulations are proposed to be applicable with respect to 
returns and deposits that relate to calendar quarters beginning on or 
after the date of publication of the final regulations in the Federal 
Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations and, because 
these regulations do not impose on small entities a collection of 
information requirement, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis 
is not required. Pursuant to section 7805(f) of the Internal Revenue 
Code, this notice of proposed rulemaking will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic and written comments that 
are submitted timely to the IRS. The IRS and Treasury Department 
specifically request comments on the clarity of the proposed 
regulations and how they may be made easier to understand. All comments 
will be available for public inspection and copying. A public hearing 
may be scheduled if requested in writing by any person that timely 
submits written comments. If a public hearing is scheduled, notice of 
the date, time, and place for the hearing will be published in the 
Federal Register.

Drafting Information

    The principal author of these regulations is Susan Athy, Office of 
Associate Chief Counsel (Passthroughs and Special Industries). However, 
other personnel from the IRS and Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 40

    Excise taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 40 is proposed to be amended as follows:

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

    Paragraph 1. The authority citation for part 40 is amended by 
removing the entries for Sections 40.6071(a)-1 and 40.6071(a)-2 and 
Sections 40.6302(c)-2, 40.6302(c)-3, and 40.6302(c)-4; and adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 40.6071(a)-1 also issued under 26 U.S.C. 6071(a). * * *
    Section 40.6302(c)-2 also issued under 26 U.S.C. 6302(a).
    Section 40.6302(c)-3 also issued under 26 U.S.C. 6302(a).


Sec. 40.0-1  [Amended]

    Par. 2. Section 40.0-1 is amended as follows:
    1. Paragraphs (d) and (e) are removed.
    2. Paragraph (f) is redesignated as new paragraph (d).


Sec. 40.6011(a)-1  [Amended]

    Par. 3. Section 40.6011(a)-1 is amended by removing paragraph (c).


Sec. 40.6011(a)-2  [Amended]

    Par. 4. Section 40.6011(a)-2 is amended as follows:
    1. In paragraph (b)(2), the language ``Sec. 40.6302(c)-1(f)(2)'' is 
removed and ``Sec. 40.6302(c)-1(e)(2)'' is added in its place.
    2. Paragraph (d) is removed.
    Par. 5. Section 40.6071(a)-1 is amended by revising paragraphs (a), 
(b)(2), and (c) to read as follows:


Sec. 40.6071(a)-1  Time for filing returns.

    (a) Quarterly returns. Each quarterly return required under 
Sec. 40.6011(a)-1(a)(2) must be filed by the last day of the first 
calendar month following the quarter for which it is made.
    (b) * * *
    (2) Semimonthly returns. Each semimonthly return required under 
Sec. 40.6011(a)-1(b) must be filed by the last day of the semimonthly 
period (as defined in Sec. 40.0-1(c)) following the semimonthly period 
for which it is made.
    (c) Effective date. This section is applicable with respect to 
returns that relate to calendar quarters beginning on or after the date 
of publication of the final regulations in the Federal Register.


Sec. 40.6071(a)-2  [Removed]

    Par. 6. Section 40.6071(a)-2 is removed.


Sec. 40.6091-1  [Amended]

    Par. 7. Section 40.6091-1 is amended by removing paragraph (d).
    Par. 8. Section 40.6101-1 is revised to read as follows:


Sec. 40.6101-1  Period covered by returns.

    See Sec. 40.6011(a)-1(a)(2) for the rules relating to the period 
covered by the return.
    Par. 9. Sections 40.6109(a)-1 and 40.6151(a)-1 are revised to read 
as follows:


Sec. 40.6109(a)-1  Identifying numbers.

    Every person required under Sec. 40.6011(a)-1 to make a return must 
provide the identifying number required by the instructions applicable 
to the form on which the return is made.


Sec. 40.6151(a)-1  Time and place for paying tax shown on return.

    Except as provided by statute, the tax must be paid at the time 
prescribed in Sec. 40.6071(a)-1 for filing the return, and at the place 
prescribed in Sec. 40.6091-1 for filing the return.
    Par. 10. Section 40.6302(c)-1 is revised to read as follows:


Sec. 40.6302(c)-1  Use of Government depositaries.

    (a) In general--(1) Semimonthly deposits required. Except as 
provided by statute or by paragraph (e) of this section, each person 
required under Sec. 40.6011(a)-1(a)(2) to file a quarterly return must 
make a deposit of tax for each semimonthly period (as defined in 
Sec. 40.0-1(c)) in which tax liability is incurred.
    (2) Treatment of taxes imposed by chapter 33. For purposes of this 
part 40, tax imposed by chapter 33 (relating to communications and air 
transportation) is treated as a tax liability incurred during the 
semimonthly period--
    (i) In which that tax is collected; or
    (ii) In the case of the alternative method, in which that tax is 
considered as collected.

[[Page 10652]]

    (3) Definition of net tax liability. Net tax liability means the 
tax liability for the specified period plus or minus any adjustments 
allowable in accordance with the instructions applicable to the form on 
which the return is made.
    (4) Computation of net tax liability for a semimonthly period. The 
net tax liability for a semimonthly period may be computed by--
    (i) Determining the net tax liability incurred during the 
semimonthly period; or
    (ii) Dividing by two the net tax liability incurred during the 
calendar month that includes that semimonthly period, provided that 
this method of computation is used for all semimonthly periods in the 
calendar quarter.
    (b) Amount of deposit--(1) In general. The deposit of tax for each 
semimonthly period must be not less than 95 percent of the amount of 
net tax liability incurred during the semimonthly period.
    (2) Safe harbor rules--(i) Applicability. The safe harbor rules of 
this paragraph (b)(2) are applied separately to taxes deposited under 
the alternative method provided in Sec. 40.6302(c)-3 (alternative 
method taxes) and to the other taxes for which deposits are required 
under this section (regular method taxes).
    (ii) Regular method taxes. Any person that made a return of tax 
reporting regular method taxes for the second preceding calendar 
quarter (the look-back quarter) is considered to have complied with the 
requirement of this part 40 for deposit of regular method taxes for the 
current calendar quarter if--
    (A) The deposit of regular method taxes for each semimonthly period 
in the current calendar quarter is not less than \1/6\ of the net tax 
liability for regular method taxes reported for the look-back quarter;
    (B) Each deposit is made on time;
    (C) The amount of any underpayment of regular method taxes is paid 
by the due date of the return; and
    (D) The person's liability does not include any regular method tax 
that was not imposed at all times during the look-back quarter or a tax 
on a chemical not subject to tax at all times during the look-back 
quarter.
    (iii) Alternative method taxes. Any person that made a return of 
tax reporting alternative method taxes for the look-back quarter is 
considered to have complied with the requirement of this part 40 for 
deposit of alternative method taxes for the current calendar quarter 
if--
    (A) The deposit of alternative method taxes for each semimonthly 
period in the current calendar quarter is not less than \1/6\ of the 
net tax liability for alternative method taxes reported for the look-
back quarter;
    (B) Each deposit is made on time;
    (C) The amount of any underpayment of alternative method taxes is 
paid by the due date of the return; and
    (D) The person's liability does not include any alternative method 
tax that was not imposed at all times during the look-back quarter and 
the month preceding the look-back quarter.
    (iv) Modification for tax rate increase. The safe harbor rules of 
this paragraph (b)(2) do not apply to regular method taxes or 
alternative method taxes for the first and second calendar quarters 
beginning on or after the effective date of an increase in the rate of 
any tax to which this part 40 applies unless the deposit of those taxes 
for each semimonthly period in the calendar quarter is not less than 
\1/6\ of the tax liability the person would have had with respect to 
those taxes for the look-back quarter if the increased rate of tax had 
been in effect for the look-back quarter.
    (v) Failure to comply with deposit requirements. If a person fails 
to make deposits as required under this part 40, that failure may be 
reported to the appropriate IRS office and the IRS may withdraw the 
person's right to use the safe harbor rules of this paragraph (b)(2).
    (c) Time to deposit--(1) In general. The deposit of tax for any 
semimonthly period must be made by the 14th day of the following 
semimonthly period unless such day is a Saturday, Sunday, or legal 
holiday in the District of Columbia in which case the immediately 
preceding day which is not a Saturday, Sunday, or legal holiday in the 
District of Columbia is treated as the 14th day. Thus, generally, the 
deposit of tax for the first semimonthly period in a month is due by 
the 29th day of that month and the deposit of tax for the second 
semimonthly period in a month is due by the 14th day of the following 
month.
    (2) Exceptions. See Sec. 40.6302(c)-2 for the special rules for 
September. See Sec. 40.6302(c)-3 for the special rules for deposits 
under the alternative method.
    (d) Remittance of deposits--(1) Deposits by federal tax deposit 
coupon. A completed Form 8109, ``Federal Tax Deposit Coupon,'' must 
accompany each deposit. The deposit must be remitted, in accordance 
with the instructions applicable to the form, to a financial 
institution authorized as a depositary for federal taxes (as provided 
in 31 CFR part 203).
    (2) Deposits by electronic funds transfer. For the requirement to 
deposit excise taxes by electronic funds transfer, see Sec. 31.6302-
1(h) of this chapter. A taxpayer not required to deposit by electronic 
funds transfer pursuant to Sec. 31.6302-1(h) of this chapter remains 
subject to the rules of this paragraph (d).
    (e) Exceptions--(1) Taxes excluded. No deposit is required in the 
case of the taxes imposed by--
    (i) Section 4042 (relating to fuel used on inland waterways);
    (ii) Section 4161 (relating to sport fishing equipment and bows and 
arrow components);
    (iii) Section 4682(h) (relating to floor stocks tax on ozone-
depleting chemicals); and
    (iv) Section 48.4081-3(b)(1)(iii) of this chapter (relating to 
certain removals of gasohol from refineries).
    (2) One-time filings. No deposit is required in the case of any 
taxes reportable on a one-time filing (as defined in Sec. 40.6011(a)-
2(b)).
    (3) De minimis exception. For any calendar quarter, no deposit is 
required if the net tax liability for the quarter does not exceed 
$2,500.
    (f) Effective date. This section is applicable with respect to 
deposits that relate to calendar quarters beginning on or after the 
date of publication of the final regulations in the Federal Register.
    Par. 11. Section 40.6302(c)-2 is revised to read as follows:


Sec. 40.6302(c)-2  Special rules for September.

    (a) In general--(1) Separate deposits required for the second 
semimonthly period. In the case of deposits of taxes not deposited 
under the alternative method (regular method taxes) for the second 
semimonthly period in September, separate deposits are required for the 
period September 16th through 26th and for the period September 27th 
through 30th.
    (2) Amount of deposit--(i) In general. The deposits of regular 
method taxes for the period September 16th through 26th and the period 
September 27th through 30th must be not less than 95 percent of the net 
tax liability for regular method taxes incurred during the respective 
periods. The net tax liability for regular method taxes incurred during 
these periods may be computed by--
    (A) Determining the amount of net tax liability for regular method 
taxes reasonably expected to be incurred during the second semimonthly 
period in September;
    (B) Treating \11/15\ of the amount determined under paragraph 
(a)(2)(i)(A) of this section as the net tax liability for regular 
method taxes incurred during the period September 16th through 26th; 
and

[[Page 10653]]

    (C) Treating the remainder of the amount determined under paragraph 
(a)(2)(i)(A) of this section (adjusted to reflect the amount of net tax 
liability for regular method taxes actually incurred through the end of 
September) as the net tax liability for regular method taxes incurred 
during the period September 27th through 30th.
    (ii) Safe harbor rules. The safe harbor rules in Sec. 40.6302(c)-
1(b)(2) do not apply for the third calendar quarter unless--
    (A) The deposit of taxes for the period September 16th through 26th 
is not less than \11/90\ of the net tax liability for regular method 
taxes reported for the look-back quarter; and
    (B) The total deposit of taxes for the second semimonthly period in 
September is not less than \1/6\ of the net tax liability for regular 
method taxes reported for the look-back quarter.
    (3) Time to deposit. (i) The deposit required for the period 
beginning September 16th must be made by September 29th unless--
    (A) September 29th is a Saturday, in which case the deposit must be 
made by September 28th; or
    (B) September 29th is a Sunday, in which case the deposit must be 
made by September 30th.
    (ii) The deposit required for the period ending September 30th must 
be made at the time prescribed in Sec. 40.6302(c)-1(c).
    (b) Persons not required to use electronic funds transfer. The 
rules of this section are applied with the following modifications in 
the case of a person not required to deposit taxes by electronic funds 
transfer.
    (1) Periods. The deposit periods for the separate deposits required 
under paragraph (a) of this section are September 16th through 25th and 
September 26th through 30th.
    (2) Amount of deposit. In computing the amount of deposit required 
under paragraph (a)(2)(i)(B) of this section, the applicable fraction 
is \10/15\. In computing the amount of deposit required under paragraph 
(a)(2)(ii)(A) of this section, the applicable fraction is \10/90\.
    (3) Time to deposit. In the case of the deposit required under 
paragraph (a) of this section for the period beginning September 16th, 
the deposit must be made by September 28th unless--
    (i) September 28th is a Saturday, in which case the deposit must be 
made by September 27th; or
    (ii) September 28th is a Sunday, in which case the deposit must be 
made by September 29th.
    (c) Effective date. This section is applicable with respect to 
deposits that relate to calendar quarters beginning on or after the 
date of publication of the final regulations in the Federal Register.
    Par. 12. Section 40.6302(c)-3 is amended as follows:
    1. In paragraph (b)(1)(ii), the language ``9-day rule of 
Sec. 40.6302(c)-1(b)(6)'' is removed and ``rule of Sec. 40.6302(c)-
1(c)(1)'' is added in its place.
    2. In paragraph (b)(3), second sentence, the language ``6th'' is 
removed and ``16th'' is added in its place.
    3. In paragraph (d), first sentence, the language ``not less than'' 
is removed and ``not less than 95 percent of'' is added in its place.
    4. In paragraph (f)(4), the language ``Sec. 40.6302(c)-1(c)(2)(i)'' 
is removed and ``Sec. 40.6302(c)-1(b)(2)'' is added in its place.
    5. Paragraph (f)(5) is removed.
    6. Paragraphs (f)(6) and (f)(7) are redesignated as paragraphs 
(f)(5) and (f)(6), respectively.
    7. Paragraph (g) is revised.
    8. Paragraph (h) is removed.
    The revision reads as follows:


Sec. 40.6302(c)-3  Special rules for use of Government depositaries 
under chapter 33.

* * * * *
    (g) Effective date. This section is applicable with respect to 
deposits of taxes that are considered as collected in calendar quarters 
beginning on or after the date of publication of the final regulations 
in the Federal Register and to returns of tax for calendar quarters 
beginning on or after the date of publication of the final regulations 
in the Federal Register.


Sec. 40.6302(c)-4  [Removed]

    Par. 13. Section 40.6302(c)-4 is removed.


Sec. 40.9999-1  [Removed]

    Par. 14. Section 40.9999-1 is removed.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 01-1120 Filed 2-15-01; 8:45 am]
BILLING CODE 4830-01-P