Year 2000 Advisory for Payment of Taxes
Proprietors of Distilled Spirits Plants, Bonded Wineries,
Breweries, Tobacco Product Manufacturers, Cigarette Papers and Tubes
Manufacturers, Firearms and Ammunition Manufacturers and others
PURPOSE: The purpose of this circular is to alert all persons
who pay excise tax that they are subject to penalties and interest
for any late payment of such taxes, and that the year 2000 (Y2K)
may present obstacles that could cause tax payments to be late unless
precautions are taken.
BACKGROUND: Around January 1, 2000, most computer software
and hardware is at risk for error or failure, due to inherent inability
to calculate dates or to perform date-related functions. Some computer
operating systems and software applications were originally programmed
to recognize only the last two digits of a year. As a result, some
systems may fail or provide inaccurate calculations if they interpret
00 as 1900 instead of 2000. The failure of systems could have a
devastating impact on the ability to conduct business. This is the
single largest problem to affect the information technology industry.
There are several other dates related to or near the start of year
2000 that may also cause problems. Some known examples of other
dates that may cause computer problems are 9/9/99, 12/31/99 and
Taxpayers who pay by any type of electronic funds transfer are
particularly at risk of incurring a late tax payment because of
ADVISORY: The Bureau of Alcohol, Tobacco and Firearms (ATF)
is emphasizing that reasonable business care and prudence should
be exercised to assure that tax due is paid on time. All taxpayers
should make a reasonable effort to determine if their tax payments
will transfer timely and properly. If the payment is not on time,
26 U.S.C. 6651(a)(2) provides for a penalty for failure to pay the
amount shown as tax on a return on or before the date prescribed
for payment of such tax. Section 6656(a) provides a penalty for
failure to make timely deposits of taxes. Both of these sections
specifically provide that penalties shall be imposed, unless it
is shown that the failure to make a timely deposit or payment of
tax is due to reasonable cause and not due to willful neglect.
Taxpayers who are required to pay electronically: Taxpayers who
are liable during any calendar year for $5 million or more in excise
taxes imposed on distilled spirits, wines, beer, or tobacco products
are required to pay such taxes during the following year by electronic
funds transfer (EFT). The taxpayers financial institution,
either directly or through a correspondent bank, must use either
the Fedwire Deposit System (FDS) or the Automated Clearing House
(ACH) system. These systems require that the financial institution
transmit the EFT payment to a district Federal Reserve Bank (FRB).
The industry member is responsible for ensuring that the deposit
was made to the FRB.
Industry members who are required to pay by EFT are responsible
for ensuring that their banks are Y2K compliant with the FRB, and
for determining alternate backups to insure payment by EFT. Industry
members should make sure they receive notification from the bank
that the funds transfer has gone through on time, or verify the
transfer with the bank prior to the close of the day that the tax
payment was due. The industry member must exercise ordinary business
care and prudence in making contingency plans that include arrangements
for the timely tax payment to be made through an alternate system,
in the event of a computer that obstructs a particular transfer
An industry member who is required to pay by EFT but discovers
that it will not be able to pay by EFT may consider paying by check.
This will avoid the penalties and interest incurred for late payment
if the check is postmarked or received on or before the due date.
However, the penalties for failure to timely deposit will still
Penalties will be assessed for failure to deposit if payments are
made through the lockbox (i.e. by paper check), unless the industry
member can demonstrate that it exercised ordinary business care
and prudence in making contingency plans to pay by either FedWire
or ACH. Interest will be assessed for late payments.
Taxpayers who are not required to pay by EFT: Taxpayers may pay
their excise taxes by check or money order, or may voluntarily pay
Any taxpayer that pays by EFT would be subject to the penalties
and interest for late payment if the payment was late due to Y2K
problems. However, if they are not required to pay by EFT they would
not be subject to the failure to deposit penalties.
Taxpayers who pay by check or money order are responsible for sending
their tax payment (e.g., paper check) and tax return to ATFs
lockbox address. The industry member must have the mail postmarked
or the payment received on or before the due date. The industry
member may obtain proof of mailing from the U.S. Post Office to
assure that the payment was on time.
Industry Contingency Planning for Internal Systems: Industry members
are responsible for ensuring that their internal systems for calculating
the amount of excise tax owed are Y2K compliant. Industry members
are responsible for developing contingency plans for calculating
the amount of excise tax owed if their internal systems fail to
be Y2K compliant.
If an industry members internal system fails because of Y2K
problems and the amount of tax can not be calculated, an estimated
payment may be made to minimize interest on the late payment. Interest
will be owed on estimated payments that are less than the full tax
owed. Abatement of penalties will be based on the ordinary business
care and prudence exhibited by the industry member in ensuring that
its internal systems are Y2K compliant.
The industry member should also be aware that provisions must be
made for maintaining all other required records beyond those of
the tax records.
Interest and Penalties: There is no provision in the law for forgiving
interest when a payment is not timely paid. Unless specific emergency
provisions are activated by law interest will be due regardless
of the reason for the late payment or underpayment (in the case
of estimated tax payment).
Failure to pay and failure to make timely deposit penalties can
be waived if reasonable cause can be shown to explain why the payments
were late. Reasonable cause will be found only if the taxpayer exercised
ordinary business care and prudence in providing for payment, and
was nevertheless unable to pay the tax on the due date. Reasonable
cause determinations will be made on a case by case basis in light
of the facts of the particular situation.
For example, an industry member may be found to have reasonable
cause if: (1) it took all precautions such as obtaining a written
confirmation from the bank that it was fully Y2k compliant, or Y2K
ready, and tests had been done to confirm the readiness; (2) both
primary and backup systems failed; (3) internal systems failed despite
proven efforts previously made to make it compliant; and (4) the
industry member did not wait until the last moment to attempt to
make the payment arrangements.
Emergency Provisions: If the President declares a national or local
emergency due to Y2K failures, ATF will abate penalties and interest
on late payments, within the parameters of the emergency situation.
If there are widespread failures that cause another authority (e.g.,
Governor, Mayor) to declare a state or local emergency, ATF will
take that fact into consideration and may abate the penalties, within
the parameters of the emergency situation. An example of an emergency
that would be declared locally is if an entire towns electrical
power failed due to Y2K problems.
Intervening Laws: To the extent that any laws pertaining to failures
arising from Y2K problems apply and differ from this Industry Circular,
ATF will abide by such laws. ATF considers compliance with the procedures
in this Industry Circular to be consistent with the Y2K Act, Public
Dates that have a higher risk of interrupting timely Payment: Industry
members may wish to pay particular attention to these dates in their
Y2K planning efforts.
The first excise tax payment in year 2000 is due January 14, 2000.
This payment is for taxable removals made during the period of December
16 through 31, 1999.
The tax payment for removals during the period of January 1 through
15, 2000 is due January 28, 2000.
The tax payment for removals made during any part of September,
1999, or any tax payment due in the later part of September, 1999,
is at risk. The Y2K problem is further complicated by 26 U.S.C.
5061(d)(4), "Special rule for tax due in September" which
specifies different periods and payment dates in September.
The tax payment for removals during the period of February 1 through
15, 2000 is due February 29, 2000, a leap year.
The dates above are not all inclusive. The Y2K problems and risks
have already been encountered and are expected to continue through
the year 2001.
ATF's Y2K Efforts: The Bureau of Alcohol, Tobacco & Firearms
(ATF) relies heavily on automated systems to accomplish its regulatory
and enforcement business processes. Consequently, a Year 2000 (Y2K)
Program was established to ensure a smooth transition into the new
millennium. ATFs Y2K Program is a series of Automated Data
Processing (ADP) support services and hardware and software repair
and replacement actions. The program is designed to insure that
our Information Technology (IT) and Non-Information Technology systems
are compliant prior to January 1, 2000. It will also provide executable
Continuity of Operations Plans in the event that compliance is not
We have established an initiative to maintain communication called
Outreach. Our intent is to reach out to our revenue and data exchange
partners to get an understanding of their Y2K activities, concerns
and ability to meet their regulatory obligations. As part of the
Outreach program ATF has already talked with industry groups about
the Y2K problems.
Point of Contact: The point of contact for Y2K problems concerning
tax return and payment is the Revenue Division, Phone 202 927-8200.
Taxpayers who will not be able to timely file or pay taxes should
contact ATF as soon as they know there is a problem so that ATF
can work with the taxpayer to minimize the impact.
INQUIRIES: Inquiries concerning this circular should refer
to its number and be addressed to the Assistant Director (Alcohol
and Tobacco), Bureau of Alcohol, Tobacco and Firearms, Washington
John W. Magaw