Written designation controls voluntary payroll tax payment

Plain-English summary

Chief Counsel explained when a taxpayer may direct how a payroll tax payment is applied. A taxpayer may designate a voluntary payment only through specific written instructions made when the payment is submitted. The taxpayer cannot designate a payment produced by enforced collection. If a voluntary partial payment lacks proper instructions, the IRS applies it in the government's best interests, generally to successive periods by priority and to non-trust-fund taxes first. Excess amounts then pay trust-fund taxes, followed by assessed fees and collection costs, assessed penalties and interest, and accrued penalties and interest.

Ruling snapshot

• Question: May a taxpayer designate how a quarterly federal tax deposit attributable to a specific payroll is applied?
• Outcome: Advice given: yes for a voluntary payment with specific contemporaneous written instructions; otherwise the IRS applies the payment in its best interests.
• Key authorities: Rev. Proc. 2002-26; Policy Statement 5-14; IRM §§ 1.2.1.6.3, 5.7.4.3, and 8.25.2.4.4; Salazar v. Commissioner

Full text (IRS public release)

ID: CCA_2019110508593544
UILC: 3402.00-00

Number: 202129007
Release Date: 7/23/2021
From: ----------------------
Sent: Thursday, October 31, 2019 1:46 PM
To: --------------------
Cc: ----------------------------
Subject: Designating Payments/ROTA call

Hi --------

During our ROTA call earlier this month, a question was raised about whether a
taxpayer can designate the payment allocation when the taxpayer makes a quarterly
federal tax deposit, attributable to a specific payroll, or whether the payment must be
applied in the best interests of the government. Please share the response below with
your staff.

A taxpayer is permitted to designate a voluntary payment, but in order for such
designation to be proper the request or designation for the application of the payment
must be specific, in writing, and made at the time of the payment. A taxpayer has no
right of designation of payments resulting from enforced collection measures.

If a taxpayer submits a voluntary partial payment when there are assessments for more
than one taxable period, and does not provide specific written instructions as to the
application of the partial payment, then the payments will be applied in a manner
serving the best interests of the government. The payment will generally be applied to
satisfy the liability for successive periods in descending order of priority until the
payment is absorbed and is applied to non-trust fund taxes first.

Pursuant to Policy Statement 5-14 (found at IRM 1.2.1.6.3), to the extent partial
payments exceed the nontrust fund portion of the tax liability, they are deemed to be
applied against the trust fund portion of the tax liability (e.g., withheld income tax,
employee’s share of FICA, collected excise taxes). Once the nontrust fund and trust
fund taxes are paid, the remaining payments will be considered to be applied to
assessed fees and collection costs, assessed penalty and interest, and accrued penalty
and interest to the date of payment.

For more information, see the following resources:

Rev. Proc. 2002-26, 2002-1 C.B. 746

2

Salazar v. Comm'r, 338 Fed. Appx. 75, 79 (2d Cir. 2009) (and cases quoted therein)
IRM 5.7.4.3
IRM 8.25.2.4.4

Thanks ---

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