Overall

Penalties applicable to CTW information and tax returns for failure to file, failure to file correctly and failure to pay. Intentional failure to file correctly can result in a penalty of 10% of gross income even when no tax is due. If a Withholding Agent fails to make a required deposit within the time prescribed, a penalty is imposed on the underpayment (the excess of the required deposit over any actual timely deposit for a period). The Service Center imposes penalties for discrepancies between when a liability is declared on Lines 1 to 60 on Form 1042 and when deposits are received. The examiner should confirm that the liabilities are declared on the correct dates on the Form 1042.

The WA can avoid penalties if it can show that the failure to deposit was for reasonable cause and not because of willful neglect. Also, the IRS may waive penalties if certain requirements are met. If a Withholding Agent owes a penalty for failing to deposit tax for more than one deposit period, and it makes a deposit, the deposit is applied to the most recent period to which the deposit relates unless the USWA designates otherwise. See Pg 13, 14