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Because a taxpayer may direct the application
of a voluntary payment to the IRS to whatever type of liability the taxpayer
chooses, <175 persons who might be subject to the Code Section 6672
penalty should have the taxpayer give specific written <176 instructions
at or before the time of payment to the IRS to apply the voluntary payments
to the trust fund portion of the liability. Unless a specific designation
is made regarding application of the payment, the IRS will consider any
payment on a corporate account to represent payment of the employer
portions of the liability (including assessed penalties and interest),
<177 will allocate the payment to non-trust fund taxes, and will apply
only the remaining balance of the payment (if any) to the trust fund portion
of the liability, thus preserving its 100 percent remedy against responsible
persons. It should be noted that no right
of designation is recognized when an involuntary payment is made, <178
and the IRS policy with regard to such payments is to allocate the payment
to the non-trust fund taxes. <179
175/ Rev. Rul. 79-284, 1979-2 C.B. 83 (voluntary
payments will be applied as designated, while undesignated payments will
be applied "in a manner serving the best interest of the Service"); Muntwyler
v. United States, 703 F.2d 1030, 1032 (7th Cir. 1983); O'Dell v. United
States, 326 F.2d 451, 456 (10th Cir. 1964); In re State Mechanical, Inc.,
84-2 U.S.T.C. para. 9880 (Bankr. W.D. Wash. 1984).
176/ See Kinnie v. United States, 994 F.2d
279 (6th Cir. 1993) (accountant's oral direction to IRS that payment was
to be applied entirely to trust fund portion of payroll taxes was not effective
and court upheld IRS allocation of payment 50 percent to trust fund portion
and 50 percent to non-trust fund portion). See also White v. United States,
No. 96-814T (Fed. Cl. April 19, 1999), where the Court of Federal Claims
held that although a taxpayer may direct the application of a voluntary
payment to any tax liability, the taxpayer's ambiguous notations on checks
sent to the IRS did not constitute specific written instructions to apply
the payments to unpaid employment tax liabilities rather than to penalties
and interest. In addition, the fact that the first payment was of the exact
amount of employment tax due did not put the IRS on notice that the payment
was for employment tax liabilities and not for accrued penalties and interest.
177/ I.R.M., 56(18)3.1, Employer (Corporate)
Payments (11-21-89); see, e.g., Sotir v. United States, 978 F.2d 29 (1st
Cir. 1992); Kinnie v. United States, 994 F.2d 279 (6th Cir. 1993); Muntwyler
v. United States, 703 F.2d 1030, 1032 (7th Cir. 1983); Notaro v. United
States, 93-1 U.S.T.C. para. 50,030 (N.D. Ill. 1992); Anderson v. United
States, 497 F. Supp. 563, 565 (E.D. Wis. 1980).
178/ In re State Mechanical, Inc., 84-2 U.S.T.C. para. 9880 (Bankr. W.D. Wash. 1984) (characterizing payments received from a bankruptcy estate as involuntary payments because a court order specifically directed the trustee to disburse the funds to the IRS, and the trustee in bankruptcy therefore could not designate the manner in which the IRS could designate the payments); Tidewater Plumbing & Heating, Inc. v. United States, 82-1 U.S.T.C. para. 9238 (D. Md. 1981) (stating that the definition of a voluntary payment should not be extended beyond reasonable bounds, that the intent of Code Section 6672 should not be defeated by taxpayer manipulation of the application of a partial payment unless it clearly appears that the payment is a voluntary one, and classifying a payment to the government arising from a settlement as an involuntary payment which the taxpayer was not entitled to designate).
179/ I.R.M. Section 1218, Policies of the
IRS Handbook, Section P-5- 60; Rev. Rul. 79-284, 1979-2 C.B. 83; see, e.g.,
Muntwyler v. United States, 703 F.2d 1030, 1032 (7th Cir. 1983).
FULL TEXT
26 CFR 1.163-1: Interest deduction in
general. (Also Section 6601; 301.6601-1.) Partial payment of
deficiencies; allocation to tax, penalty, and interest. Voluntary
partial payments of assessed tax, penalty, and interest will be applied
to withheld employment taxes and collected excise taxes as designated by
the taxpayer. If no designation is made, the payments will be allocated
to tax, penalty, and interest in a manner serving the best interest of
the Service. Rev. Rul. 73-305 modified.
REV. RUL. 79-284
FACTS
Rev. Rul. 73-305, 1973-2 C.B. 43, holds
that partial payments of assessed tax, penalty, and interest are to be
applied as the taxpayer designates. If the taxpayer fails to give specific
instructions as to the application of the partial payment voluntarily tendered,
the amount of such payment will be applied by the Service to tax, penalty,
and interest, in that order, for the earliest period, then to tax, penalty,
and interest, in that order, for the next succeeding period, until the
payment is absorbed. Rev. Rul. 73-305 further states, however, that it
is not applicable to Alcohol, Tobacco and Firearms Taxes, withheld
employment taxes and collected excise taxes.
HOLDING
Rev. Rul. 73-305 applies to withheld employment taxes and collected excise taxes where the taxpayer provides specific written instructions for the application of a voluntary partial payment. If no designation is made by the taxpayer, the Internal Revenue Service will allocate partial payments of withheld employment taxes and collected excise taxes to tax, penalty, or interest in a manner serving its best interest.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 73-305 is modified.
END RULING
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