Taxpayers who are required to collect air transportation taxes must deposit these taxes in accordance with IRS guidelines. Regular method taxpayers are required to follow the new 14-day deposit rule (as imposed by the Final Regulations) and alternative method taxpayers must follow the three-day deposit rule. The IRS has issued safe-harbor rules to assist taxpayers in meeting their deposit requirements. The IRS also has issued guidance on meeting the special September deposit rules of IRC §6302.
Safe Harbor Rules
Under the old regulations, taxpayers were given two safe harbor methods that could be used to satisfy the Federal excise tax deposit rules. These two rules were the current liability safe harbor rule (95-percent safe harbor rule) and the look-back quarter safe harbor rule. The Final Regulations issued on August 9, 2001, eliminated the 95-percent safe harbor rule since the deposit requirements were modified. The look-back quarter safe harbor was retained by the Final Regulations.
Look-Back Quarter Safe Harbor. The look-back quarter safe harbor allows taxpayers to use the second preceding calendar quarter as its basis for making current quarter deposits. For example, a taxpayer making deposits for the third quarter of a calendar year can base its deposits for that quarter on the net tax liability as reported in the first quarter of that year. The safe harbor will apply if:
- Each semimonthly deposit is not less than 1/6 of the net tax liability for the look-back quarter
- Each deposit is made on time
- Any underpayment for the quarter is paid by the due date of the Federal excise tax return
- The liability for the current taxes does not include a liability for a tax that was not imposed at all times during the look-back quarter. For alternative method taxpayers, the tax must have been imposed at all times during the look-back quarter and the month preceding the look-back quarter.
If there is an increase in the tax rate imposed between the look-back quarter and the current quarter, the taxpayer is required to deposit 1/6 of the tax liability that would have been imposed if the increased rate was imposed during the look-back quarter.
95-Percent Safe Harbor. Under the old regulations, taxpayers were required to deposit an amount equal to the air transportation taxes incurred during the semimonthly period. The IRS issued a 95-percent safe harbor rule whereby a taxpayer would not be penalized if the taxpayer timely deposited at least 95 percent of each semimonthly period liability and paid any underpayment by the due date of its tax return. Under the old rules, failure to meet the 95-percent safe harbor rule for one semimonthly period would invalidate the 95-percent safe harbor rule for the entire quarter. The Final Regulations eliminated this safe harbor since the general deposit requirement was changed to 95 percent of the semimonthly period liability. The Final Regulations also changed the rules so that each semimonthly period is a standalone period. Therefore, failure to deposit at least 95 percent of the current semimonthly period would not invalidate the safe harbor for the entire quarter, but the penalty for underpayment would apply only to the semimonthly period that failed the 95-percent test.
Special September Rule
IRC §6302 imposes a special deposit rule for September. The special September rule accelerates a portion of the deposit normally due in October to September. The due date of the special deposit and the amount to deposit is dependent on whether the taxpayer uses electronic funds transfer (EFT) to deposit its Federal excise taxes.
Special September Rule for Regular Method Taxpayers Using EFT. Regular method taxpayers using EFT must deposit the taxes collected during the period September 16 through September 26 by September 29.
The taxes collected during the remainder of that semimonthly period (September 27 through September 30) must be deposited under the general deposit rules. The special September deposit amount may be computed by:
- Determining the amount of the net tax liability for regular method taxes reasonably expected to be incurred during the second semimonthly period of September
- Depositing 11/15 of that amount by the September 29.
Taxpayers using the look-back quarter safe harbor must also make the special September rule deposit.
Taxpayers using the look-back quarter:
- Must deposit not less than 11/90 of the look-back quarter net tax liability for regular taxes as its special September deposit
- Must deposit not less than 1/6 of the look-back quarter net tax liability for regular taxes in total for the second September semimonthly period.
If September 29 is a Saturday, the special September deposit must be made by September 28. If September 29 is a Sunday, the special September deposit must be made by September 30.
Special September Rule for Alternative Method Taxpayers Using EFT. Alternative method taxpayers using EFT must deposit the taxes collected during the period September 1st through September 11 by September 29. The taxes collected during the remainder of that semimonthly period (September 12 through September 15) must be deposited under the general deposit rules. The special September deposit amount may be computed by:
- Determining the amount of the net tax liability for alternative method taxes incurred during the first semimonthly period of September
- Depositing 11/15 of that amount by the September 29.
Taxpayers using the look-back quarter safe harbor must also make the special September rule deposit.
Taxpayers using the look-back quarter:
- Must deposit not less than 11/90 of the look-back quarter net tax liability for alternative taxes as its special September deposit
- Must deposit not less than 1/6 of the look-back quarter net tax liability for alternative taxes in total for that semimonthly period.
If September 29 is a Saturday, the special September deposit must be made by September 28. If September 29 is a Sunday, the special September deposit must be made by September 30.
Taxpayers Not Using EFT. Taxpayers not using EFT are subject to an earlier deposit date (September 28) and the computation of the amount to deposit is adjusted to take into account the shorter period (10 days versus 11 days). The liability periods are shortened one day (September 25 and September 10 for regular method and alternative method taxpayers respectively) and the calculations use 10/15 and 10/90 (in lieu of 11/90 and 11/15). See the Final Regulations under §40.6302(c)-2 for regular method taxpayers and §40.6302(c)-3 for alternative method taxpayers.
International Business Aviation Council Ltd.