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General Best Practices
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variety of bank accounts, it must set up different accounts with the government
for each bank account, since there is currently no way for the government to
remove funds from multiple accounts through the electronic funds payment
transfer system (EFTPS) system. Finally, the system cannot be used to make last-
minute payments; instead, transfers must be initiated no later than the day before
a tax payment is due, in order to ensure that the IRS receives it in time.
Cost: Installation time:

13–20 REDUCE TAX PENALTIES WITH INTERNET-BASED
PENALTY MODELING

When a company misses making a tax deposit to the IRS, the IRS always applies
the next deposit received to the missing deposit, even though the next deposit
received may apply to a different payment period. This creates a cascading series
of penalties, because the first penalty will still be recorded in the IRS database as
having been received late, as well as the second deposit (since it was applied to
the first deposit), and so on. The result can be quite hefty penalty and interest
payments that range from 2 percent to 15 percent of each missing deposit.
In 1998, the IRS adopted a new tax law provision that allows taxpayers 90 days
from the date of a tax penalty notice to designate how the IRS should apply their
deposits to taxes due. The details of this provision are contained within the IRS’
Revenue Procedure 99-10. The IRS also has a “98% Rule” that allows a taxpayer
to deposit at least 98 percent of the amount due and still avoid being assigned a
penalty for underpayment (though the missing amount must be paid shortly
thereafter). One can call the toll-free IRS number listed on the penalty notice to
tell the IRS how to allocate deposits in order to avoid the cascading penalties
problem; the 98% Rule can be used to shift money around between the various
payments due in order to further incrementally reduce the amount of the penalty.
The www.taxpenalty.com Web site, run by TimeValue Software, allows one
to enter all information pertinent to a tax penalty issue, calculates all payment
scenarios under Revenue Procedure 99-10, taking into account the 98% Rule, and
determines the ideal payment allocation that will result in the lowest possible
penalty payment. Given the permutations of the IRS penalty calculations, the
98% Rule, and the timing of payments made, the ideal lowest penalty amount is
extremely difficult to calculate, so this automated solution is quite useful for
determining the optimal payment situation. The site also prints all required
reports and describes the tax abatement process. The calculation and report gen-
eration services of this Web site are free until the tax penalty savings exceeds
$250, at which point the site charges a fee of $49 for savings in the range of $251
to $500, ranging up to a maximum fee of $399 for savings exceeding $10,000.

Cost: Installation time: