United States: The Benefits And Potential Pitfalls Of Making A Tax Deposit

Taxpayers who anticipate owing money to the Internal Revenue Service may file a "deposit" with the government. A deposit benefits a taxpayer by stopping the running of interest on an underpayment and penalties.25 Unlike a payment, a deposit does not prevent a taxpayer from challenging a deficiency in Tax Court,26 nor does it trigger the statute of limitations for filing a refund claim.27 And if it is later determined that no tax is due to the government, the taxpayer can simply ask the government to return the money with neither the formality of filing a claim for refund nor the need to show that there had been an overpayment of tax. In addition, if the deposit is requested to be returned, the taxpayer is entitled to the payment of interest on the deposit at the applicable Federal short-term rate to the extent the deposit is attributable to a "disputed tax item"28 (meaning you can't "deposit" funds with the IRS just to earn interest.)

Historically, the genesis of a tax "deposit" has had a tortured path. The concept of a tax deposit was first recognized in the Supreme Court's decision in Rosenman v. United States, which found a basis for the concept in implications from the Internal Revenue Code.29 Mr. Justice Frankfurter, writing for a unanimous court in Rosenman,30 first described a remittance that was not a "payment" of a tax, but rather "a depositmade in the nature of a cash bond for the payment of taxes thereafter found to be due."31 But, neither the term "deposit" nor Justice Frankfurter's concept of one "made in the nature of a cash bond for the payment of taxes thereafter found to be due" could be found in any of the income tax provisions in the 1939 Code.32 The Federal Circuit later interpreted Rosenman in New York Life Ins. Co v. United States,33 concluding that a "circumstances" test controlled the question of whether a remittance was a deposit. Over time, the decisions in this area focused less on the tax attributes of deposits, and more on whether a particular remittance was a "deposit" versus a "payment."

The IRS eventually issued a series of revenue procedures, designed to provide taxpayers with guidance as to how "deposits" should be made and would be processed.34 Rev. Proc. 84-58 and the patchwork of judicial decisions were later replaced by I.R.C. section 6603 (part of the American Jobs Creation Act of 2004),35 which was enacted to permit a taxpayer to make a deposit and suspend the running of interest under section 6601 on a potential underpayment of tax that was not been assessed at the time of the deposit. Today, this Code provision controls the question of whether a remittance is a "deposit" not New York Life.

Section 6603 was enacted to permit taxpayers to make a deposit with the Service that may be used by the Secretary to pay any income, gift, estate, or generation-skipping taxes imposed under the Code, which has not been assessed at the time of the deposit. To the extent that such deposit is used by the Service to pay tax, for purposes of section 6601 (relating to interest on underpayments), the tax shall be treated as paid when the deposit is made. Interest will not be charged on the portion of the underpayment that is deposited for the period that the amount is on deposit. Except in the case where the Service has determined that the collection of tax is in jeopardy, section 6603 provides that the Service shall return to the taxpayer any amount of the deposit the taxpayer requests in writing. A taxpayer may request the withdrawal of any amount of the deposit at any time. There is no limitations period for recovering a deposit with the IRS.36

Under section 6603, deposits will earn interest at the applicable Federal short-term rate to the extent they are attributable to a disputed tax item. A disputable item is any item for which the taxpayer (1) has a reasonable basis for the treatment of the item, and (2) reasonably believes that the Service also has a reasonable basis for disallowing the taxpayer's treatment of such item.37 All items included in a 30-day letter (letter of proposed deficiency subject to administrative review) to a taxpayer are deemed disputable for purposes of section 6603.

A deposit shall be made in the manner prescribed by the Service. Section 6603(a) was explicated by Revenue Procedure 2005-18, which provides that a taxpayer may make a deposit by filing a "written statement designating the remittance as a deposit."38 Rev. Proc. 2005-18 provides the procedures to make, withdraw or identify deposits to suspend the running of interest on potential underpayments. "[A] remittance that is not designated as a deposit (an "undesignated remittance") will be treated as a payment and applied by the Service against any outstanding liability for taxes, penalties or interest."39 Rev. Proc. 2005-18 superseded Rev. Proc. 84-58.

Under Rev. Proc. 2005-18 the procedures for making a deposit under section 6603 are as follows:

  1. A taxpayer may make the deposit to the IRS Service Center at which the taxpayer is required to file its return or to the appropriate office at which the taxpayer's return is under examination.
  2. A check or money order must be accompanied by a written statement designating the remittance as a deposit. The written statement must also include the following:
  1. The type of tax;
  2. The tax year(s), and
  3. The statement described in section 7.02 (of Rev. Proc. 2005-18) identifying the amount of and basis for the disputable tax.
  1. Section 7.02 requires that the taxpayer provide a written statement to include:
  1. The taxpayer's calculation of the amount of disputed tax;
  2. A description of the item of income, gain, loss, deduction or credit for which the taxpayer has a reasonable basis for the treatment of the item;
  3. The basis for the taxpayer's belief that it has a reasonable basis for the treatment of any item described in section 7.02 on its return.

Remittances to the IRS may be a deposit in the nature of a cash bond, which the IRS holds until resolution of a case and may be refunded at any time, or the remittance may be a payment of tax which may only be refunded if a timely refund claim is filed.40 Courts have noted that though Rev. Proc. 84-58 still provides important "guideposts" for distinguishing between deposits and payments, ultimately the courts must apply a facts and circumstances test.41

When making a deposit, it is important to designate in writing that the remittance is a "deposit" and not an "advanced payment."42 In Bedrosian, Tax Court rejected taxpayers' argument that they made an undesignated remittance while they were under examination, but before a liability was proposed in writing, and therefore the remittance was a deposit. Without such designation described in the Revenue Procedures discussed above, the failure "weighs against a finding that the remittance was a deposit."43 The purpose of such designation is to clearly indicate the intention of the taxpayer, a significant factor in the analysis.44 The Fourth Circuit has held that the distinction between a payment and a deposit is based on "intent[,] which may be determined from the circumstances, such as when the tax liability was created, the taxpayer's purpose in remitting the money, and how the IRS treated the payment."45

Generally, the Circuit Courts have held that determining whether a remittance is a payment or a deposit involves consideration of the facts and circumstances of the case, with no one factor being conclusive.46 Relevant factors include: (1) whether the tax has been assessed by the IRS prior to the remittance; (2) whether the remittance is "disorderly," i.e. made without careful consideration of the potential tax liability;47 (3) whether the taxpayer contests liability; (4) whether the taxpayer indicates to the IRS that the remittance is a deposit;48 (5) whether the IRS viewed the remittance as a deposit; and (6) whether the remittance was made when payment was due and submitted with a request for an extension of time within which to file a return.49

In Deaton v. Commissioner,50 the court considered the following facts and circumstances to classify remittances made prior to assessment: (1) evidence that the taxpayer intended the remittance to be a deposit when remitted, (2) evidence that the taxpayer was disputing its tax liability, (3) and whether the taxpayer availed itself of the procedure available for making deposits.51 Collectively, these factors indicate that the a taxpayer must appropriately avail itself of the procedures available in a manner that indicates clear intention. In Deaton, the remittance was made in conjunction with a request for an extension to file a return and the court determined that the remittance was a payment of tax under the facts and circumstances it reviewed.52 A similar conclusion was recently reached in Bolt v. United States.53 In Bolt, the taxpayers remitted a payment to the Service with a signed copy of IRS Form 4549 "Income Tax Examination Changes," which notified the Bolts of the amount of their tax liability. The Bolts did not submit any written statement with the remittance designating it as a deposit, pursuant to section 6603 or Rev. Proc. 2005-18. The IRS treated the remittance as an "advance payment of deficiency," and not as a deposit. The court concluded that the Bolts intended the remittance to be a payment and not a deposit, and dismissed the Bolts' claim for refund as time barred.

Transmitting a deposit to the Service provides certain benefits to taxpayers. However, taxpayers must follow the prescribed requirements of Rev. Proc. 2005-18 and clearly articulate that the payment should be treated as a deposit and not as a payment of tax. Failure to do so may result in an undesirable outcome, as the taxpayers experienced in Bedrosian, Deaton and Bolt.


25 Principal Life v. United States, 95 Fed. Cl. 781, 796 (2010)

26 Baral v. United States, 528 US 431, 439 n.2 (2000)

27 Rosenman v. United States, 323 US 658, 662-63 (1945)

28 See IRC section 6603.

29 See Rosenman v. United States, 323 US 658, 662-63 (1945)

30 Id. at 662-63.

31 Id.

32 See New York Life Ins. Co. v. United States, 118 F.3d 1553, 1556 (Fed. Cir. 1997), cert. denied, 523 US 1094 (1998)

33 New York Life Ins. Co v. United States, 118 F.3d 1553, 1556 (Fed. Cir. 1997)

34 See Rev. Proc. 84-58, 1984-2 C.B. 501; Rev. Proc. 82-51, 1982-2 C.B. 839; Rev. Proc. 64-13, 1964-1 C.B. 674; Rev. Proc. 63-11, 1964-1 C.B. 497; see also Baral, 528 US at 439 n.2 (noting the existence of this guidance) 35Pub. L. No. 108-357, 118 Stat. 1418

36 Blatt v. United States, 34 F.3d 252, 254-55 (4th Cir. 1994)

37 See IRC Section 6603(d)(3)

38 Rev. Proc. 2005-18 § 4.01(1)

39 Rev. Proc. 2005-18 § 4.01(2)

40 Rosenman v. United States, 323 US 658, 662-63 (1945)

41 See, e.g.Winford v. United States, 970 F. Supp. 2d 548 (W.D. La. 2013), aff'd, 587 Fed. App'x 207 (5th Cir. 2014) (adopting the lower court's analysis in full)

42 See Bedrosian v. Commissioner, TC Memo 2007-376 (The written statement accompanying the check remitted by petitioners states that the check is for an "advance payment," not a deposit)

43 Winford v. United States, 970 F. Supp. 2d 548, 555, citing VanCanagan v. United States, 231 F.3d 1349, 1353 (Fed. Cir. 2000) 44 Ford Motor Co. v. United States, 768 F.3d 580, 589 (6th Cir. 2014).

45 Blatt v. United States, 34 F.3d 252, 255 (4th Cir. 1994) (citing Rosenman v. United States, 323 US 658, 662 (1945))

46 See e.g., VanCanagan, 231 F.3d at 1353 (Fed. Cir. 2000); New York Life Ins. Co. v. United States, 118 F.3d 1553, 1557 (Fed. Cir. 1997); Cohen v. United States, 995 F.2d 205, 208-09 (Fed. Cir. 1993) (citing Charles Leich & Co. v. United States, 329 F.2d 649 (Ct. Cl. 1964))

47 See Northern Natural Gas Co. v. United States, 354 F.2d 310, 315 (Ct. Cl. 1965)

48 See VanCanagan, 231 F.3d at 1353.

49 Id.

50 440 F.3d 223 (5th Cir.2006)

51 Id. at 232.

52 Id.

53 Bolt v. United States, 116 AFTR 2d. 2015-651 (D.S. Car. 2015)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Grant Thornton LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Grant Thornton LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions