Deposits of Excise Taxes

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 40 [TD 8963] RIN 1545-AX11

TITLE: Deposits of Excise Taxes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains the final 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: Effective Date: These regulations are effective August 9,
2001. Applicability Date: These regulations are applicable with
respect to returns and deposits that relate to calendar quarters
beginning on or after October 1, 2001.

FOR FURTHER INFORMATION CONTACT: Susan Athy (202) 622-3130 (not a
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final 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 that invited comments from the public
on issues relating to the requirements for excise tax returns and
deposits was published in the Federal Register (65 FR 1076). Several
written comments were received and considered in drafting the
proposed regulations. On February 16, 2001, a notice of proposed
rulemaking (REG-106892- 00) was published in the Federal Register
(66 FR 10650). Written comments and requests for a public hearing
were solicited. Written comments responding to the notice were
received from one commentator. The comments requested that the safe
harbor rule based on look-back quarter liability be modified to be
applicable: to each semimonthly period in a quarter if one-sixth of
look-back quarter liability is deposited during that semimonthly
period; when a taxpayer's liability includes new or reinstated
taxes; and when a new legal entity includes a party that filed a
Form 720 for the second preceding quarter. The final regulations do
not adopt the requested modifications to the look-back safe harbor
rule because doing so could significantly reduce the percentage of
excise tax liability deposited without any corresponding reduction
in the complexity of the deposit rules. No public hearing was
requested or held. After consideration of all of the comments, the
proposed regulations are adopted without change by this Treasury
decision.

Special Analyses

It has been determined that this Treasury decision 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, the notice of proposed rulemaking
preceding these regulations was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its
impact on small business.

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. Adoption
of Am ndm nts to th Regulations Accordingly, 26 CFR part 40 is
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). * * *

§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).

§40.6011(a)-1 [Amended ] Par. 3. Section 40.6011(a)-1 is
amended by removing paragraph (c). §40.6011(a)-2 [Amended ]
Par. 4. Section 40.6011(a)-2 is amended as follows:

1. In paragraph (b)(2), the language "§40.6302(c)-1(f)(2)" is
removed and "§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: §40.6071(a)-1 Time for
filing returns.

(a) Quarterly returns. Each quarterly return required under
§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
§40.6011(a)-1(b) must be filed by the last day of the
semimonthly period (as defined in §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
October 1, 2001. §40.6071(a)-2 [Removed ]

Par. 6. Section 40.6071(a)-2 is removed. §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:
§40.6101-1 Period covered by returns.

See §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: §40.6109(a)-1 Identifying numbers. Every person
required under §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.

§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 §40.6071(a)-1 for filing the return, and at the
place prescribed in §40.6091-1 for filing the return.

Par. 10. Section 40.6302(c)-1 is revised to read as follows:
§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 §40.6011(a)-1(a)(2) to file a quarterly return
must make a deposit of tax for each semimonthly period (as defined
in §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.

(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 §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 14 day of the following semimonthly period unless
such th 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 14 day. Thus, generally, the deposit of tax for th
the first semimonthly period in a month is due by the 29 day of that
month and the th deposit of tax for the second semimonthly period in
a month is due by the 14 day of th the following month.

(2) Exceptions. See §40.6302(c)-2 for the special rules for
September. See §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
§31.6302-1(h) of this chapter. A taxpayer not required to
deposit by electronic funds transfer pursuant to §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
§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
October 1, 2001. Par. 11. Section 40.6302(c)-2 is revised to read as
follows: §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 16 through 26 and for the period th th
September 27 through 30 . th th (2) Amount of deposit--

(i) In general. The deposits of regular method taxes for the period
September 16 through 26 and the period September 27 through 30 must
th th th th 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 16 through 26 ; and th th

(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 27 through 30 . th th

(ii) Safe harbor rules. The safe harbor rules in
§40.6302(c)-1(b)(2) do not apply for the third calendar quarter
unless--

(A) The deposit of taxes for the period September 16 through 26 is
not less th th 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 16 must
be made by September 29 unless-- th th

(A) September 29 is a Saturday, in which case the deposit must be
made by th September 28 ; or th

(B) September 29 is a Sunday, in which case the deposit must be made
by th September 30 . th

(ii) The deposit required for the period ending September 30 must be
made at th the time prescribed in §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 16 through 25 and
September 26 th th th through 30 . th

(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 16
, the deposit must be made by th September 28 unless-- th

(i) September 28 is a Saturday, in which case the deposit must be
made by th September 27 ; or th

(ii) September 28 is a Sunday, in which case the deposit must be
made by th September 29 . th

(c) Effective date. This section is applicable with respect to
deposits that relate to calendar quarters beginning on or after
October 1, 2001. Par. 12. Section 40.6302(c)-3 is amended as
follows:

1. In paragraph (b)(1)(ii), the language "9-day rule of
§40.6302(c)-1(b)(6)" is removed and "rule of
§40.6302(c)-1(c)(1)" is added in its place.

2. In paragraph (b)(3), last sentence, the language "6 " is removed
and "16 " is th th 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) introductory text, the language
"§40.6302(c)-1(c)(2)(i)" is removed and "§40.6302(c)-1(b)
(2)" is added in its place.

5. Paragraphs (f)(5) and (f)(7) are removed.

6. Paragraph (f)(6) is redesignated as paragraph (f)(5).

7. Paragraph (g) is revised.

8. Paragraph (h) is removed.

The revision reads as follows:

§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 and returns that relate to taxes that are considered as
collected in calendar quarters beginning on or after October 1,
2001. §40.6302(c)-4 [Removed ]

Par. 13. Section 40.6302(c)-4 is removed. §40.9999-1 [Removed ]

Par. 14. Section 40.9999-1 is removed.

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

Approved: July 31, 2001

Mark A. Weinberger
Assistant Secretary of the Treasury

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