In addition to establishing the Form 944 Program, these proposed regulations will provide a safe harbor for small employers that have an unexpected increase in their deposit liability for a quarterly return period. The proposed regulations provide an alternate method for determining whether the employer’s employment tax obligations are de minimis, which is based on its employment taxes due for the prior return period. This special rule applies only to employers filing quarterly tax returns and therefore has no application to the Form 944 Program.

Under the existing regulations, deposits of taxes reported on Form 941, “Employer’s Quarterly Federal Tax Return,” generally are due monthly or semi-weekly. If an employer fails to make timely deposits of employment taxes, then, absent reasonable cause, the employer will be subject to the penalty for failure to deposit under section 6656. Currently, §31.6302-1(f)(4) (the de minimis deposit rule) provides that, for quarterly and annual return periods, if the aggregate amount of employment taxes for the return period is less than $2,500 and that amount is deposited or remitted with a timely filed return for that return period, the amount will be deemed to have been timely deposited and the employer will not be subject to the penalty for failure to deposit. Thus, currently under the de minimis deposit rule, employers remitting their employment taxes with their timely filed quarterly returns will only be deemed to have timely deposited their taxes if the amount of taxes due is less than $2,500 for that quarter. Similarly, under the current de minimis deposit rule, employers remitting their employment taxes with their timely filed annual returns will only be deemed to have timely deposited if the amount of taxes due is less than $2,500 for the entire year.

Under the proposed amendments, employers may remit their employment taxes with their timely filed quarterly returns and be deemed to have timely deposited if the amount of the taxes due for the current quarter or for the prior quarter is less than $2,500. This special rule can be illustrated by the following example: an employer has less than $50,000 in employment taxes reported during the lookback period and is therefore a monthly depositor under §31.6302-1(b)(2). The employer’s employment tax liabilities for the first and second quarters of 2004 were $2,450 and $2,400, respectively. In the third quarter of 2004, however, the employer’s employment tax liability was $2,550. Under the existing de minimis deposit rule, if the employer remits the $2,550 with its third quarter return, the amount is not considered timely deposited for that quarter and, therefore, the employer would be assessed the section 6656 penalty for failure to deposit. Modifying the de minimis deposit rule to allow employers to base the determination on the employment taxes due for the immediately preceding quarter provides a safe harbor for employers regarding their deposit obligations. Thus, in this example, when the employer had an increase in its employment tax liability for the third quarter of 2004, its remittance would still be deemed to have been timely deposited because the taxes for the immediately preceding return period were de minimis. The proposed amendment has no application to the One-Day rule in §31.6302-1(c)(2), which requires employers to make a deposit on the next banking day if they accumulate $100,000 or more of employment taxes.

(a) * * *

(5) [The text of proposed §31.6011(a)-1(a)(5) is the same as the text of §31.6011(a)-1T(a)(5) published elsewhere in this issue of the Bulletin].

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Par. 3. Section 31.6011(a)-4 is amended by revising paragraph (a)(4) to read as follows:

(a) * * *

(4) [The text of proposed §31.6011(a)-4(a)(4) is the same as the text of §31.6011(a)-4T(a)(4) published elsewhere in this issue of the Bulletin].

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Par. 4. Section 31.6302-1 is amended by revising paragraphs (b)(4), (c)(5) and 6, (d) Example 6, (f)(4), and (f)(5) Example 3 to read as follows:

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(b) * * *

(4) * * *

(i) [The text of the proposed §31.6302-1(b)(4)(i) is the same as the text of §31.6302-1T(b)(4)(i) published elsewhere in this issue of the Bulletin].

(ii) [The text of the proposed §31.6302-1(b)(4)(ii) is the same as the text of §31.6302-1T(b)(4)(ii) published elsewhere in this issue of the Bulletin].

(c) * * *

(5) [The text of proposed §31.6302-1(c)(5) is the same as the text of §31.6302-1T(c)(5) published elsewhere in this issue of the Bulletin].

(6) [The text of proposed §31.6302-1(c)(6) is the same as the text of §31.6302-1T(c)(6) published elsewhere in this issue of the Bulletin].

(d) * * *

Example 6. [The text of proposed §31.6302-1(d) Example 6 is the same as the text of §31.6302-1T(d) Example 6 published elsewhere in this issue of the Bulletin].

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(f) * * *

(4) De minimis rule—(i) De minimis deposit rule for quarterly and annual return periods beginning on or after January 1, 2001. If the total amount of accumulated employment taxes for the return period is de minimis and the amount is fully deposited or remitted with a timely filed return for the return period, the amount deposited or remitted will be deemed to have been timely deposited. The total amount of accumulated employment taxes is de minimis if it is less than $2,500 for the return period or if it is de minimis pursuant to paragraph (f)(4)(ii) of this section.

(ii) De minimis deposit rule for quarterly return periods. For purposes of paragraph (f)(4)(i) of this section, if the total amount of accumulated employment taxes for the immediately preceding quarter was less than $2,500, unless paragraph (c)(3) of this section applies to require a deposit at the close of the next banking day, then the employer will be deemed to have timely deposited the employer’s employment taxes for the current quarter if the employer complies with the time and method of payment requirements contained in paragraph (f)(4)(i) of this section.

(iii) [The text of proposed §31.6302-1(f)(4)(iii) is the same as the text of §31.6302-1T(f)(4)(iii) published elsewhere in this issue of the Bulletin].

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Example 3. [The text of proposed §31.6302-1(f)(5) Example 3 is the same as the text of §31.6302-1T(f)(5) Example 3 published elsewhere in this issue of the Bulletin]

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