MITIGATION OF FAILURE TO DEPOSIT PENALTY.

SEC. 3304. MITIGATION OF FAILURE TO DEPOSIT PENALTY. (a) Taxpayer May Designate Periods to Which Deposits Apply.— Section 6656 (relating to underpayment of deposits) is amended by adding at the end the following new subsection: “(e) Designation of Periods to Which Deposits Apply.— “(1) In general.— A person may, with respect to any deposit of tax to be reported on such person’s return for a specified tax period, designate the period or periods within such specified tax period to which the deposit is to be applied for purposes of this section. “(2) Time for making designation.— A person may make a designation under paragraph (1) only during the 90-day period beginning on the date of a notice that a penalty under subsection (a) has been imposed for the specified tax period to which the deposit relates.”. (b) Expansion of Exemption for First-Time Deposits.— (1) In general.— Paragraph (2) of section 6656(c) (relating to exemption for first-time depositors of employment taxes) is amended to read as follows: “(2) such failure— “(A) occurs during the first quarter that such person was required to deposit any employment tax; or “(B) if such person is required to change the frequency of deposits of any employment tax, relates to the first deposit to which such change applies, and”. (c) Periods Apply to Current Liabilities Unless Designated Otherwise.— Paragraph (1) of section 6656(e) (as added by subsection (a) of this section) is amended to read as follows: “(e) Designation of Periods to Which Deposits Apply.— “(1) In general.— A deposit made under this section shall be applied to the most recent period or periods within the specified tax period to which the deposit relates, unless the person making such deposit designates a different period or periods to which such deposit is to be applied.”. (d) Effective Date.— 112 STAT. 743 (1) In general.— The amendments made by this section shall apply to deposits required to be made after the 180th day after the date of the enactment of this Act. (2) Application to current liabilities.— The amendment made by subsection (c) shall apply to deposits required to be made after December 31, 2001.