TC 670: Subsequent Payment

What the code actually does

TC 670 is the general payment code. IRS Document 6209, Section 8A covers both cases in one entry: "if return has posted, credits the Tax Module with payment on account. If return has not posted, credits the Tax Module with prepayment on account."

IRM 5.1.2.6.2 states when revenue officers are to use it: "for all assessed amounts, all accrued failure to pay (FTP) penalties, and accrued interest," as well as for deposits secured in person, business estimated payments, and "payment of lien filing fees" — noting that where the fees have not yet been assessed, the fee assessment goes in simultaneously.

It is deliberately broad, which is why it needs a qualifier to be readable.

The designated payment code is mandatory, and it decides everything

IRM 5.1.2.9.1 sets out what designated payment codes are for: they "serve a three-fold purpose: facilitate identification of payments; indicate application of payment to a specific liability; identify an event which resulted in a payment." The manual then lists the transaction codes that require one — 640, 670, 680, 690, 694 and 700 — and says plainly: "DPCs are mandatory for these transaction codes."

On employment taxes the specific instruction is the one to remember: "before assessment, use DPC-01 (non-trust fund) and/or DPC-02 (Trust Fund), as appropriate, when applying payments to the following forms/type of tax: Form 941 (MFT 01), Form 720 (MFT 03), Form CT-1 (MFT 09), Form 943 (MFT 11)."

A payroll liability splits into a trust fund portion — the tax withheld from employees — and a non-trust fund portion, the employer’s own share plus penalties and interest. Only the trust fund portion can be assessed personally against a responsible person. So a voluntary payment designated to trust fund reduces the individual exposure; the identical payment designated to non-trust fund reduces the company’s balance and leaves the personal risk untouched.

Designation is a right, and it has to be exercised

The designation is not something the Service chooses on a client’s behalf when the payment is voluntary. It is a written instruction that has to accompany the payment, and if it is not given the Service applies the money in the government’s best interest — which, on a payroll account with a responsible-person investigation running, generally means not to the trust fund.

The consequence is that an untagged payment on an employment tax module is a missed opportunity that cannot easily be recovered later. Where a company is paying down a payroll liability while a Trust Fund Recovery Penalty investigation is live, the designation on every single payment is worth more attention than the amount.

It also explains a client complaint that sounds like an accounting error: money was paid, and the personal assessment did not move. It usually did exactly what the untagged payment instructed it to do.

The right to designate applies to voluntary payments only, which is the boundary worth knowing. Money the Service takes — through a levy, an offset, or the proceeds of a seizure — is involuntary, and the taxpayer has no say in how it is applied. So the window in which designation is available closes as soon as enforcement starts doing the collecting, which is another reason to raise it early rather than when the CP14 balance notices have already escalated.

What TC 670 gets confused with

It gets confused with TC 610, the remittance that came in with the return. That distinction matters for timeliness — a payment with the return and a payment three months later are different facts about the same client, and the code preserves which is which.

It gets confused with an advance payment of a determined deficiency, which posts under its own code and carries different consequences for interest. The two are easy to conflate when a client pays "toward the audit."

And its reversals get misread. A dishonoured payment reverses this code, and Doc 6209 records that on the subsequent-payment reversal, "if not accompanied by a secondary TC 280, a TC 286 is systemically generated" — so the bad-check penalty can appear automatically without anyone deciding to assess it. Reading that penalty as a considered determination overstates it, and its relief path under IRC §6657 turns on good faith and reasonable cause rather than on arguing with a person.

The practitioner’s actual next step

On any employment tax account, read the designated payment code on every payment before drawing conclusions about personal exposure.

Designate voluntary payments in writing to the trust fund portion where reducing responsible-person liability is the objective, and do it at the time rather than afterwards.

Where payments were made without designation, work out what that cost before advising the client on their remaining personal risk.

Distinguish a payment made with the return from one made afterwards when the question is timeliness rather than amount.

Check whether an apparent payment was later reversed, and whether a penalty generated automatically behind it.