[Federal Register Volume 64, Number 55 (Tuesday, March 23, 1999)]
[Proposed Rules]
[Pages 13940-13942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6948]
[[Page 13940]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 31, and 40
[REG-100729-98]
RIN 1545-AW41
Electronic Funds Transfers of Federal Deposits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to the
deposit of Federal taxes by electronic funds transfer (EFT). The
proposed regulations affect certain taxpayers required to make deposits
of Federal taxes. For calendar years beginning after 1999, the proposed
regulations provide rules under which certain taxpayers must make
deposits by EFT.
DATES: Written and electronic comments must be received by May 24,
1999.
Outlines and topics to be discussed at the public hearing scheduled
for May 11, 1999, at 10 a.m. must be received by April 20, 1999.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-100729-98), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
100729-98), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the ``Tax Regs'' option on
the IRS Home Page, or by submitting comments directly to http://
www.irs.ustreas.gov/prod/tax__regs/comments.html (the IRS Internet
address). The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Ave. NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Vincent Surabian, (202) 622-4940; concerning submission of comments,
the hearing, and/or to be placed on the building access list to attend
the hearing, Michael Slaughter, (202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1), the Estate Tax Regulations (26 CFR part
20), the Gift Tax Regulations (26 CFR part 25), the Employment Taxes
and Collection of Income Tax at Source Regulations (26 CFR part 31),
and the Excise Tax Procedural Regulations (26 CFR part 40).
On July 14, 1997, the IRS issued final regulations under section
6302(h) of the Internal Revenue Code relating to the deposit of Federal
taxes by EFT (TD 8723, 62 FR 37490). Those final regulations gradually
phase taxpayers into the EFT system through 1999. In the final stages
of the phase-in under those regulations, taxpayers with more than
$50,000 in employment tax deposits during calendar year 1995, 1996, or
1997, and taxpayers that, in any of those years, had no employment tax
deposits but made deposits of other depository taxes exceeding $50,000,
were required to begin to deposit by EFT.
At present, the regulations do not require EFT use by a new or
growing taxpayer with annual deposits that did not exceed the
prescribed threshold for the first time before 1998.
Explanation of Provisions
1. Increase in Current $50,000 Threshold
Section 6302(h) requires that in fiscal year 1999 and subsequent
years 94 percent of employment taxes and 94 percent of other depository
taxes be collected by EFT. The IRS and Treasury Department previously
concluded that the deposit threshold had to be set at $50,000 to
satisfy this statutory requirement. More recent experience suggests,
however, that the statutory requirement can be satisfied even if the
threshold is set at a substantially higher level. Moreover, an increase
in the threshold would allow small businesses to make the transition to
the EFT system at their own pace as they adopt electronic funds
transfer in their other business operations. Accordingly, the proposed
regulations increase the deposit threshold to $200,000 in aggregate
Federal tax deposits during a calendar year.
The new threshold will be applied initially to 1998 deposits, and
taxpayers that exceed the threshold in 1998 will be required to deposit
by EFT in 2000 and subsequent years. Taxpayers that first exceed the
threshold in 1999 or a subsequent year will similarly be required to
deposit by EFT after a one-year grace period. A taxpayer that exceeds
the threshold will not be permitted to resume making paper coupon
deposits if its deposits fall below $200,000 in a subsequent year.
Although a similar rule applies under the current regulations,
taxpayers that are currently required to deposit by EFT will be given a
fresh start and will not be required to use EFT unless they exceed the
$200,000 threshold in 1998 or a subsequent calendar year.
Under the new rules, only 9 percent of all business taxpayers that
make Federal tax deposits will be required to deposit by EFT. The fresh
start will allow 65 percent of the taxpayers subject to the EFT
requirement under the current regulations to resume making paper coupon
deposits beginning in 2000. The IRS and Treasury Department are
confident, however, that most of these taxpayers have come to
appreciate the simplicity and convenience of the EFT system and will
continue to deposit by EFT on a voluntary basis. The continued
participation of these taxpayers, coupled with ongoing efforts to
encourage voluntary enrollment, should assure 94 percent collections by
EFT notwithstanding the increase in the threshold.
2. Taxes Taken into Account in Applying Threshold
The current regulations prescribe one threshold ($50,000 in
employment taxes) for depositors liable for employment taxes and a
separate threshold ($50,000 in other taxes) for taxpayers with no
employment tax liability. Thus, taxpayers that deposit employment taxes
but do not exceed the applicable $50,000 threshold are not subject to
the EFT requirement even if they deposit large amounts of other
depository taxes. In Notice 97-43 (1997-2 C.B. 294), the IRS and
Treasury Department invited public comment on two alternatives to these
rules and also welcomed any suggestions for a different rule. The first
alternative presented in Notice 97-43 is a two-pronged test under which
a taxpayer that deposits more than the threshold amount of the
employment taxes imposed by chapters 21, 22, and 24 or more than the
threshold amount of other depository taxes would be required to deposit
by EFT. The second alternative is an aggregate deposits test under
which a taxpayer that deposits more than the threshold amount of
employment and other taxes combined would be required to deposit by
EFT.
The IRS received six comments in response to Notice 97-43. Two
commentators stated that the aggregate deposits test would be the most
satisfactory. One of these commentators stated that an aggregate test
(1) is simple for taxpayers to calculate; (2) is easy for financial
institutions to calculate; and
[[Page 13941]]
(3) is easy for the IRS to monitor and maintain. The second commentator
favored an aggregate deposits test because it would introduce a larger
number of taxpayers to the advantages and efficiencies of the EFT
system.
Two commentators stated that the present system should be retained
because of its simplicity. One of these commentators stated that a
taxpayer need consider only one set of figures, its employment taxes,
to determine if it is subject to EFT. If the taxpayer has no employment
taxes, then the taxpayer would simply look at its other depository
taxes. The second commentator favored the present rule because of its
belief that the adoption of either of the two proposals described in
Notice 97-43 would bring additional smaller employers into the EFT
system. The commentator stated that it is unnecessary to bring
additional employers into the EFT system because, under the current
rule, the IRS is satisfying the requirement of section 6302(h) that
more than 94 percent of all depository taxes be deposited by EFT for
fiscal year 1999 and thereafter.
The proposed regulations adopt an aggregate deposits test. As the
comments illustrate, there is disagreement concerning the relative
simplicity of the various options. The view of the IRS and Treasury
Department, based on experience with the current system, is that an
aggregate deposits test would be, on balance, simpler, less confusing
to taxpayers, and more easily administered than a two-threshold rule.
The aggregate deposits test also has the advantage of eliminating the
anomalous current treatment of taxpayers that deposit small amounts of
employment taxes and large amounts of other taxes as if they were
smaller than taxpayers that deposit no employment taxes but are
otherwise similarly situated. The IRS and Treasury Department believe
that the other concern expressed in the comments, that the aggregate
deposits test would unnecessarily extend the EFT system to additional
small employers, has been adequately addressed by the proposed increase
in the threshold.
A fifth commentator suggested that a rule be considered under which
a taxpayer could be relieved of the EFT deposit requirement if the
taxpayer, after being mandated into the system, fails to deposit the
threshold amount during succeeding calendar years. This suggestion has
not been adopted because of concerns that it would be more complex and
more difficult to administer than the proposed rule.
A final commentator stated that the current regulations make no
provision for the consciences of persons whose religious beliefs
restrict the use of computer equipment in their businesses. The IRS and
Treasury Department are continually sensitive to the limited nature of
the technology available to many taxpayers and, for that reason, have
developed a system under which, using the ACH debit option, equipment
no more complex than a rotary or touch-tone telephone is all that is
necessary to make an EFT deposit. A computer is not required.
3. Expansion of Voluntary Payments by EFT
Finally, the current regulations allow the voluntary payment by EFT
of certain nondepository taxes, specifically individual income taxes
(including estimated taxes). These proposed regulations expand the
types of nondepository tax payments for which voluntary payment by EFT
is allowed to include nondepository payments of Federal income, estate
and gift, employment, and various specified excise taxes.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations and, because these
regulations do not impose a collection of information requirement on
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Proposed Effective Date
The regulations are proposed to become effective on the date final
regulations are published in the Federal Register.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any electronic and written comments (a
signed original and eight (8) copies) that are submitted timely to the
IRS. The IRS and Treasury Department specifically request comments on
the clarity of the proposed regulations and how they can be made easier
to understand. All comments will be available for public inspection and
copying.
A public hearing has been scheduled for May 11, 1999, beginning at
10 a.m. The hearing will be held in room 2615, Internal Revenue
Building, 1111 Constitution Avenue, NW., Washington, DC. Due to
building security procedures, visitors must enter at the 10th Street
entrance, located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 15 minutes before the
hearing starts. For information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written or
electronic comments by May 24, 1999, and submit an outline of topics to
be discussed and the time to be devoted to each topic (a signed
original and eight (8) copies) by April 20, 1999.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Vincent Surabian,
Office of Assistant Chief Counsel (Income Tax & Accounting). However,
other personnel from the IRS and Treasury Department participated in
their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
[[Page 13942]]
26 CFR Part 40
Excise taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, 25, 31, and 40 are proposed to be
amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
revising the entry for Sec. 1.6302-4 to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6302-4 also issued under sections 6302(a), (c), and (h).
* * *
Par. 2. Section 1.6302-4 is revised to read as follows:
Sec. 1.6302-4 Use of financial institutions in connection with income
taxes; voluntary payments by electronic funds transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax imposed by subtitle A of the Internal Revenue Code,
including any payment of estimated tax. Such payment must be made in
accordance with procedures prescribed by the Commissioner.
PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,
1954
Par. 3. The authority citation for part 20 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 20.6302-1 also issued under sections 6302(a) and (h). * * *
Par. 4. Section 20.6302-1 is added to read as follows:
Sec. 20.6302-1 Voluntary payments of estate taxes by electronic funds
transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax to which this part 20 applies. Such payment must be made
in accordance with procedures prescribed by the Commissioner.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 5. The authority citation for part 25 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 25.6302-1 also issued under sections 6302(a) and (h). * * *
Par. 6. Section 25.6302-1 is added to read as follows:
Sec. 25.6302-1 Voluntary payments of gift taxes by electronic funds
transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax to which this part 25 applies. Such payment must be made
in accordance with procedures prescribed by the Commissioner.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Par. 7. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 8. Section 31.6302-1 is amended as follows:
1. The heading for paragraph (h)(2) is revised.
2. A heading is added for paragraph (h)(2)(i).
3. New paragraph (h)(2)(i)(C) is added.
4. Paragraph (h)(2)(ii) is revised
5. Paragraph (h)(2)(iii) is added.
6. Paragraph (m) is redesignated as paragraph (n).
7. Paragraph (k) is redesignated as paragraph (m).
8. Paragraph (j) is redesignated as paragraph (k).
9. New paragraph (j) is added.
The additions and revisions read as follows:
Sec. 31.6302-1 Federal tax deposit rules for withheld income taxes and
taxes under the Federal Insurance Contributions Act (FICA) attributable
to payments made after December 31, 1992.
* * * * *
(h) * * *
(2) Applicability of requirement--(i) Deposits for return periods
beginning before January 1, 2000. * * *
(C) This paragraph (h)(2)(i) applies only to deposits required to
be made for return periods beginning before January 1, 2000. Thus, a
taxpayer, including a taxpayer that is required under this paragraph
(h)(2)(i) to make deposits by electronic funds transfer beginning in
1999 or an earlier year, is not required to use electronic funds
transfer to make deposits for return periods beginning after December
31, 1999, unless deposits by electronic funds transfer are required
under paragraph (h)(2)(ii) of this section.
(ii) Deposits for return periods beginning after December 31, 1999.
Unless exempted under paragraph (h)(5) of this section, a taxpayer that
deposits more than $200,000 of taxes described in paragraph (h)(3) of
this section during a calendar year beginning after December 31, 1997,
must use electronic funds transfer (as defined in paragraph (h)(4) of
this section) to make all deposits of those taxes that are required to
be made for return periods beginning after December 31 of the following
year and must continue to deposit by electronic funds transfer in all
succeeding years. Thus, a taxpayer that exceeds the $200,000 deposit
threshold during calendar year 1998 is required to make deposits for
return periods beginning in calendar year 2000 by electronic funds
transfer.
(iii) Voluntary deposits. A taxpayer that is not required by this
section to use electronic funds transfer to make a deposit of taxes
described in paragraph (h)(3) of this section may voluntarily make the
deposit by electronic funds transfer, but remains subject to the rules
of paragraph (i) of this section, pertaining to deposits by Federal tax
deposit (FTD) coupon, in making deposits other than by electronic funds
transfer.
* * * * *
(j) Voluntary payments by electronic funds transfer. Any person may
voluntarily remit by electronic funds transfer any payment of tax
imposed by subtitle C of the Internal Revenue Code. Such payment must
be made in accordance with procedures prescribed by the Commissioner.
* * * * *
PART 40--EXCISE TAX PROCEDURAL REGULATIONS
Par. 9. The authority citation for part 40 is amended by adding an
entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 40.6302(a)-1 also issued under 26 U.S.C. 6302(a) and
(h). * * *
Par. 10. Section 40.6302(a)-1 is added to read as follows:
Sec. 40.6302(a)-1 Voluntary payments of excise taxes by electronic
funds transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax to which this part 40 applies. Such payment must be made
in accordance with procedures prescribed by the Commissioner.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-6948 Filed 3-22-99; 8:45 am]
BILLING CODE 4830-01-U
