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EVEN ACTORS HAVE TO REMIT THEIR PAYROLL TAXES ELECTRONCALLY

February 21, 2008

Actor Joe Pesci's production company remitted its payroll taxes on time. Unfortunately, they paid them the old fashioned way, using payment coupons down at the bank. The IRS requires employers to remit such taxes using EFTPS, the Electronic Federal Tax Payment System.

Last week a U.S. District Court ruled that the IRS could hit the company with penalties for failing to remit the taxes the right way. From the court decision:

With its direction that the Treasury Department implement an electronic tax deposit system and prescribe regulations to govern its operation, Congress expressed its intent that the system be utilized and made obligatory for certain depository taxes. The reading that Fallu advocates, however, would leave the choice of deposit method to the taxpayer.

Accordingly, the penalty provision of 26 U.S.C. § 6656 does, by its text, reach a taxpayer's failure to deposit taxes electronically when required to do so by regulation. The only other federal court to have decided this issue agreed. See F.E. Schumacher Co. v. United States, 308 F. Supp. 2d 819, 828 (N.D. Ohio 2004) (upholding FTD penalties where taxpayer deposited employment taxes in full and on time but did not deposit electronically as it was required to do).

We discussed the F.E. Schumacker decision here.

The Moral: Sometimes it's not whether you pay the taxes, but how you do so.

Cite: Fallu Productions, Inc. vs. U.S., SDNY NO. 1:06-cv-13248

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