IRS grants limited relief from penalties on 1% excise tax on foreign remittances
Executive summary
IRS Notice 2025-55 provides much-needed relief from penalties for U.S. financial institutions struggling to implement systems and procedures for paying the OBBBA’s new 1% excise tax on remittances to foreign persons, which becomes effective Jan. 1, 2026. The notice:
- Grants relief from penalties on late deposits of the tax for the first three quarters of 2026.
- Clarifies that the first semimonthly deposit is still due by Jan. 29, 2026.
- Specifies that the remittance tax only applies to cash, money orders and similar payment types and excludes credit and debit cards as well as wire transfers from banks regulated under the Bank Secrecy Act (which includes most U.S. banks).
- Applies safe harbor rules to remittance taxes deposited incorrectly.
- Warns that failure to make deposits as required may result in the IRS withdrawing a person’s right to use the safe harbor rules.
On Oct. 7, 2025, the IRS announced that it will not impose failure to pay penalties under section 6656 of the Internal Revenue Code (Code) on taxpayers that do not timely deposit the new 1% excise tax imposed on certain remittance transfers under new section 4475. Section 4475 was added to the Code under provisions of the One Big Beautiful Bill Act (OBBBA) and is effective for cross-border transfers starting Jan. 1, 2026. The rule imposes a 1% excise tax on remittance transfers using cash, money orders, cashier’s checks or other physical instruments from senders in the U.S. to persons located in a foreign country through a remittance transfer provider and has broad implications for individuals and businesses involved in international money transfers. Please refer to our prior alert for more details. IRS Notice 2025-55 provides penalty relief for remittance transfer providers who fail to pay the correct amount of remittance transfer tax as required during the first, second and third quarters of 2026.
The notice also provides remittance providers the ability to use the deposit safe harbor rules under the excise procedural regulations under section 40.6302 (c)-1(b)(2), even if there was an underpayment of required deposits of remittance, assuming the reasonable cause standard under section 6656 is met as follows:
- The remittance transfer provider timely deposited the remittance tax even if the deposited amount was computed incorrectly.
- The amount of any underpayment of the applicable transfer tax is paid in full by the due date for filing Form 720, Quarterly Federal Excise Tax Return.
How does the tax work?
U.S. companies that are remittance transfer providers must report the gross amount of the transfer and the related excise tax liability on Form 720, Quarterly Federal Excise Tax Return, which is due quarterly with the first return due April 30, 2026. The tax must generally be collected at the time the transfer is made and must be deposited or remitted to the IRS within 14 days of the end of the semimonthly period that the liability was incurred (with the first deposit due Jan. 29, 2026). Deposits must be made using the IRS’ Electronic Funds Transfer Payment System (EFTPS) or via the new Direct Pay Service for those that choose not to enroll in EFTPS. Reportable amounts include remittance transfers made to foreign persons by cash, money order, cashier’s check or similar instruments. Transfers made with a debit or credit card and amounts wired from accounts held at regulated banks subject to the Bank Secrecy Act are excluded and, therefore, not reportable. As such, vendor-type payments made to foreign persons that are wired from U.S. bank accounts should not be in scope.
What steps should we take to get prepared?
Notice 2025-55 is intended to provide relief from section 6656 penalties with respect to remittance transfer tax deposits for the first three calendar quarters of 2026. Despite the penalty relief afforded by Notice 2025-55, financial institutions and other taxpayers will still face challenges with implementation. Besides the short-time frame for implementation, which is less than three months, companies will also need to update systems and procedures for flagging reportable transfers, collecting information from senders, calculating, collecting and timely depositing any tax. Therefore, companies should implement systems and procedures for collecting the following data:
- Transfer details - Including the date and amount of the transfer, the type of payment method used (cash, money order) and the destination country.
- Sender information - Including the sender’s name, taxpayer identification number, address, confirmation that the sender is in the U.S. and source of funds for transfer (for example, cash or debit/credit card.
- Recipient information - Including the recipient’s name, address and location (outside of the U.S.)
Companies should also put processes in place for tracking the remittance transfer tax for all three quarters with a focus on third-quarter tax deposits as these will determine required deposit amounts for the fourth quarter which, if computed incorrectly, will not benefit from penalty relief or the safe harbor rules applicable to the first three quarters.
How can RSM US assist?
RSM can assist taxpayers with developing compliance programs, systems and procedures for managing risk associated with these new rules. Our cross-functional team of global information reporting (GIR), excise tax and systems specialists help financial institutions assess their readiness and implement innovative solutions for timely identifying transfers subject to reporting, for properly calculating and timely depositing taxes withheld, and with identifying and remediating potential gaps in your current systems and processes. For additional information, please contact a member of RSM’s Washington National Tax group global information reportingor excise tax teams.