The Internal Revenue Service has issued interim guidance for taxpayers who are unable to get a bank account or make other arrangements for depositing their federal tax obligations by electronic funds transfer and thus are subject to a penalty for failure to deposit their tax payments.

To help avoid processing delays, the IRS is advising taxpayers to include “unbanked taxpayer” or a statement about being unable to get a bank account in the subject line, or at the beginning of the request for relief from the penalty.

The guidance comes in the form of a memorandum from Maria S. Hwang, director of servicewide operations at the IRS. It relates to the abatement of the failure to deposit penalty under Section 6656 of the Tax Code for their tax deposit obligations. This includes corporate income taxes, excise taxes and employment taxes.

Hwang noted that the Electronic Federal Tax Payment System was designed by the Treasury Department to allow taxpayers to deposit or pay their taxes by electronic funds transfer. Since Jan. 1, 2011, nearly all businesses have been required to make their deposits by electronic funds transfer using the EFTPS.

However, it has come to the IRS’s attention that there are unbanked taxpayers who, after undertaking reasonable efforts to obtain a bank account, are unable to do so and are unable to make other arrangements for depositing their taxes through the EFTPS.

The penalty for not depositing electronically through the EFTPS is 10 percent of the amount deposited. This failure to deposit penalty is not applicable if the taxpayer demonstrates that the failure to deposit electronically was due to reasonable cause and not due to willful neglect.

A taxpayer can establish reasonable cause by providing facts and circumstances showing that he or she exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law.

For unbanked taxpayers who are timely in meeting their tax deposit obligations, the IRS will not impose or will abate the failure to deposit penalty if a taxpayer can show they made reasonable efforts but were unable to get a bank account during the period at issue.

To request penalty relief under the new interim guidance, unbanked taxpayers need to include a signed statement that explains their attempt to get a bank account and must include any corroborating documentation (such as denied account applications, correspondence from banks, etc.). The signed statement does not have to be in a particular format. The guidance does not apply to situations in which the taxpayer can obtain a bank account, but chooses not to maintain a bank account. Such cases will continue to be handled on a case by case basis. The interim guidance took effect June 9, 2015.

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