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.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.