[Federal Register Volume 59, Number 131 (Monday, July 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16477]
[[Page Unknown]]
[Federal Register: July 11, 1994]
_______________________________________________________________________
Part II
Department of the Treasury
_______________________________________________________________________
Internal Revenue Service
_______________________________________________________________________
26 CFR Part 1 et al.
Federal Tax Deposits by Electronic Funds Transfer; Temporary Regulation
and Proposed Rule
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 40
[TD 8553]
RIN 1545-AS80
Federal Tax Deposits by Electronic Funds Transfer
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations relating to the
deposit of taxes by electronic funds transfer. The temporary
regulations describe the taxpayers that must make deposits by means of
electronic funds transfer, the types of taxes that must be so
deposited, and when the deposits must commence. The temporary
regulations reflect changes to the Internal Revenue Code made by
section 523 of the North American Free Trade Agreement Implementation
Act (NAFTA). The text of the temporary regulations also serves as the
text of the cross-reference notice of proposed rulemaking on this
subject in the Proposed Rules section of this issue of the Federal
Register.
DATES: These temporary regulations are effective July 11, 1994.
For dates of applicability, see Sec. 31.6302-1T(h) of these
regulations.
FOR FURTHER INFORMATION CONTACT: Vincent G. Surabian, 202-622-6232 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 523 of NAFTA amended section 6302 of the Internal Revenue
Code of 1986 (Code) by enacting a new subsection (h) authorizing the
Secretary of the Treasury to prescribe such regulations as may be
necessary for the development and implementation of an electronic funds
transfer (EFT) system to be used for the collection of depository
taxes. The depository taxes are the taxes required to be deposited with
an authorized financial institution or Federal Reserve bank pursuant to
any regulations prescribed by the Secretary (generally FICA and
railroad retirement taxes, income tax withheld, corporate income and
estimated taxes, and various Federal excise taxes). The new system will
be designed to ensure that the depository taxes are credited to the
Treasury's general account by the due date of the deposit.
Explanation of Provisions
A. Current Tax Deposit System
At present, taxpayers are required to deposit taxes with an
authorized government depository (generally, a commercial bank or
savings institution or a Federal Reserve bank) by various dates
specified in regulations. Each deposit must be accompanied by Form
8109, Federal Tax Deposit Coupon, which contains the taxpayer's name,
identification number, the amount and type of tax being deposited, and
the tax period for which the deposit is being made. The government
depository forwards the coupon to the appropriate IRS Service Center.
The Service Center compares the information entered on the coupon with
the liabilities reported by the taxpayer on the return for the
applicable tax period. The funds are transferred by the depository to
the Treasury on the business date following the date of the deposit.
B. An Electronic Tax Deposit System
Section 6302(h) of the Code authorizes a new system which will
allow for the transfer of tax deposit amounts electronically from
taxpayer accounts to the Treasury's general account. The new system
will be phased in over a period of several fiscal years, beginning with
fiscal year 1994 (October 1, 1993, to September 30, 1994), by gradually
increasing the percentage of the total depository taxes required to be
collected by EFT. The temporary regulations implement this phase-in by
gradually increasing the number of taxpayers that must deposit all of
their depository taxes by EFT.
The requirement to deposit by EFT under these temporary regulations
applies only to those taxpayers required to make deposits pursuant to
regulations under section 6302 of the Code, and only for those taxes
required to be deposited. At present, many small taxpayers are excluded
from the various deposit requirements imposed by regulations under
section 6302. For example, filers of Form 720, Quarterly Federal Excise
Tax Return, are not required to make deposits for any calendar quarter
in which the net tax liability reported on the Form 720 does not exceed
$2,000. Similarly, filers of Form 941, Employer's Quarterly Federal Tax
Return, are not required to make deposits for any calendar quarter in
which the liability reported on the Form 941 is less than $500.
The temporary regulations, with one exception, do not apply to
taxes with respect to wages for domestic service in the private home of
an employer because these taxes are not required to be deposited but
are remitted quarterly with Form 942, Employer's Quarterly Federal Tax
Return for Household Employees. The sole exception is if the employer
is a sole proprietor filing Form 941, Employer's Quarterly Federal Tax
Return, who chooses to report wages to household employees on that
form.
In order to achieve an expedited and orderly conversion to an EFT
system, NAFTA prescribed a schedule of minimum percentages of taxes
that must be deposited by EFT during a phase-in period. These
percentages depend in part on whether the taxes are: (a) The taxes
imposed by chapters 21 (Federal Insurance Contributions Act), 22
(Railroad Retirement Tax Act), and 24 (Collection of Income Tax at
Source on Wages) of the Code, or (b) ``other'' depository taxes
(generally corporate income taxes and various excise taxes). The
statutorily prescribed minimum percentages for each year are as
follows:
------------------------------------------------------------------------
Chapter
21, 22, & Other
Fiscal year 24 taxes taxes
(percent) (percent)
------------------------------------------------------------------------
1994.............................................. 3 3
1995.............................................. 16.9 20
1996.............................................. 20.1 30
1997 & 1998....................................... 58.3 60
1999 and later.................................... 94 94
------------------------------------------------------------------------
For the period prior to January 1, 1995, the first step of the
phase-in of the EFT system will be carried out through binding
agreements entered into between the Commissioner of Internal Revenue
and certain third party bulk data processors (processors) under which
the processors have committed to make deposits of Federal depository
taxes of certain of their customers by EFT in such a manner as to
ensure that the amounts are credited to the general account of the
Treasury by the deposit due date. These agreements will take effect
beginning in the latter part of fiscal year 1994 and will continue for
a period of time into fiscal year 1995. A taxpayer who is a customer of
a processor that is a party to one of these agreements may have its
deposits that are subject to such an agreement made by the processor
pursuant to the terms of the agreement until the expiration or
termination of the agreement. However, the taxpayer continues to be
responsible for the deposit of those depository taxes that are not
subject to such agreement. If a taxpayer whose deposits are being made
by a processor pursuant to such an agreement becomes required to
deposit by electronic funds transfer pursuant to Sec. 31.6302-
1T(h)(1)(ii) of these temporary regulations, the taxpayer is
responsible for making deposits by electronic funds transfer of those
depository taxes not subject to the agreement.
For periods after December 31, 1994, the temporary regulations
require that deposits be made by EFT based on the taxpayer's total
deposits of taxes imposed by chapters 21, 22, and 24 during certain
``determination'' periods. If a taxpayer's total deposits of the taxes
imposed by chapters 21, 22, and 24 during the determination period
exceed a prescribed dollar threshold, the taxpayer must begin
depositing by EFT on and after the applicable effective date prescribed
in the regulations, unless otherwise exempted. (A taxpayer will become
subject to the EFT requirement for the applicable effective date
``January 1, 1996'' by exceeding the threshold amount during either
calendar years 1993 or 1994). The phase-in schedule is as follows:
------------------------------------------------------------------------
Applicable effective
Threshold amount Determination period date
------------------------------------------------------------------------
$78 million............ 1-1-93 to 12-31-93..... January 1, 1995.
47 million............. 1-1-93 to 12-31-93..... January 1, 1996.
47 million............. 1-1-94 to 12-31-94..... January 1, 1996.
50 thousand............ 1-1-95 to 12-31-95..... January 1, 1997.
50 thousand............ 1-1-96 to 12-31-96..... January 1, 1998.
20 thousand............ 1-1-97 to 12-31-97..... January 1, 1999.
------------------------------------------------------------------------
The thresholds set forth in this phase-in schedule have been set by
taking into account the minimum percentages prescribed by NAFTA, the
need for administrative convenience and simplicity, and the potential
need for exemptions from the EFT system for certain small businesses.
Therefore, the thresholds for the January 1, 1995 and January 1, 1996
effective dates were specifically set to satisfy the statutory minimum
percentages. The $50,000 threshold for the January 1, 1997 effective
date will result in receipts of depository taxes somewhat in excess of
the percentage prescribed by NAFTA. For purposes of administrative
convenience and simplicity, this threshold was adopted to require the
participation of an entire class of taxpayers, that is, those taxpayers
that are classified as ``semi-weekly'' depositors of employment taxes
(the taxes imposed by chapters 21, 22, and 24). Finally, the $20,000
threshold for the January 1, 1999 effective date was set to satisfy the
statutory percentage while allowing for the possibility that the
smallest of depositors will be exempted from the EFT system. As
described in paragraph C of this preamble, the IRS solicits comments on
the impact of these regulations on small businesses. Based on those
comments, the IRS will determine those categories of small businesses,
if any, that should be exempted from the EFT requirements, and may
adjust the threshold for the January 1, 1999 effective date to bring in
additional taxpayers while at the same time accommodating any
appropriate exemptions.
Although only the taxes imposed by chapters 21, 22, and 24 are used
to determine whether a taxpayer is subject to the EFT deposit
requirement, the requirement, once triggered, applies to all federal
taxes (not just the taxes imposed by chapters 21, 22, and 24) that the
taxpayer is required to deposit pursuant to regulations prescribed
under section 6302 of the Code. Once a taxpayer becomes subject to the
EFT deposit requirement, the taxpayer must continue to deposit by EFT.
At present the IRS has in place a voluntary electronic funds
transfer (EFT) system in which a taxpayer may by telephone or computer
effectuate an electronic funds transfer through the use of one of two
payment options: debit and credit. The debit option is effected by
using a Financial Agent of the Department of Treasury. The taxpayer
requests the Financial Agent to initiate the transfer of funds from the
taxpayer's bank account(s) to Treasury's general account and transmit
the related tax payment data, supplied by the taxpayer, to the IRS. The
credit option is effected by using the taxpayer's financial
institution. The taxpayer requests the financial institution to
initiate the transfer of funds to the Treasury's general account and
submit the related tax data, supplied by the taxpayer, to a Financial
Agent for transmission to the IRS. The EFT system required to be used
in connection with these regulations will employ similar options and
procedures.
C. Exemptions
Section 6302(h)(1)(B) of the Code, as added by NAFTA, provides that
the regulations may contain such exemptions as the Secretary may deem
appropriate. The Senate Report accompanying section 6302(h) strongly
encourages the Secretary of the Treasury to consider the impact of the
regulations on small businesses. S. Rep. No. 103-189, 103d Cong., 1st
Sess., at 61 et. seq. (1993). The report recommends that the
regulations should not create hardships for small businesses and that
no small business should be required to purchase computers or gain
access to any electronic equipment other than a touch-tone telephone.
Further, the report urges the Secretary to take into account the
specific needs of small employers, including possible exemption for the
very smallest businesses from the new electronic funds transfer system.
The phase-in schedule included in the temporary regulations defers use
of the EFT system by the smallest businesses until at least calendar
year 2000. The IRS welcomes comments about the impact of the temporary
regulations on small businesses and will consider any suggestions
regarding how small businesses should be treated under the regulations
in order to implement Congressional intent. Based on the comments and
suggestions received, the IRS will determine those categories of small
businesses, if any, that should be exempted from the EFT requirements
and publish such determinations in the Internal Revenue Bulletin. (See
Sec. 601.601(d)(2)(ii)(b)).
Special Analyses
It has been determined that these temporary regulations are 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)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
a copy of these regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business.
Drafting Information
The principal author of these regulations is Vincent G. Surabian,
Office of the Assistant Chief Counsel (Income Tax & Accounting), IRS.
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 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social Security,
Unemployment compensation.
26 CFR Part 40
Excise taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 1, 31, and 40 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Sections 1.6302-1T, 1.6302-2T and 1.6302-3T also issued under 26
U.S.C. 6302(h). * * *
Par. 2. Section 1.6302-1T is added to read as follows:
Sec. 1.6302-1T Use of Government depositaries in connection with
corporation income and estimated income taxes and certain taxes of tax-
exempt organizations--deposits required to be made by electronic funds
transfer after December 31, 1994 (temporary).
(a) through (b)(1) [Reserved].
(b)(2) Deposits by electronic funds transfer. For the requirement
to deposit corporation income and estimated income taxes and certain
taxes of tax-exempt organizations by electronic funds transfer, see
Sec. 31.6302-1T(h) of this chapter. A taxpayer not required to deposit
by electronic funds transfer pursuant to Sec. 31.6302-1T(h) of this
chapter remains subject to the rules of Sec. 1.6302-1(b).
Par. 3. Section 1.6302-2T is added to read as follows:
Sec. 1.6302-2T Use of Government depositaries for payment of tax
withheld on nonresident aliens and foreign corporations--deposits
required to be made by electronic funds transfer after December 31,
1994 (temporary).
(a) through (b) [Reserved].
(c) Deposits by electronic funds transfer. For the requirement to
deposit taxes withheld on nonresident aliens and foreign corporations
by electronic funds transfer, see Sec. 31.6302-1T(h) of this chapter. A
taxpayer not required to deposit by electronic funds transfer pursuant
to Sec. 31.6302-1T(h) of this chapter remains subject to the rules of
Sec. 1.6302-2(b).
Par. 4. Section 1.6302-3T is added to read as follows:
Sec. 1.6302-3T Use of Government depositaries in connection with
estimated taxes of certain trusts--deposits required to be made by
electronic funds transfer after December 31, 1994 (temporary).
(a) through (b) [Reserved].
(c) Cross-references. For further guidance and instructions for
certain banks and financial institutions acting as fiduciaries with
respect to taxable trusts, see Revenue Procedure 89-49, 1989-2 C.B. 615
(see Sec. 601.601(d)(2) of this chapter) or any successor revenue
procedure. For the requirement to deposit estimated tax payments of
taxable trusts by electronic funds transfer, see Sec. 31.6302-1T(h) of
this chapter.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
Par. 5. The authority citation for part 31 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 31.6302-1T also issued under 26 U.S.C. 6302(h). * * *
Section 31.6302(c)-3T also issued under 26 U.S.C. 6302(h). * * *
Par. 6. Section 31.6302-1T is added to read as follows:
Sec. 31.6302-1T Federal tax deposit rules for withheld income taxes
and taxes under the Federal Insurance Contributions Act (FICA)--
deposits required to be made by electronic funds transfer after
December 31, 1994 (temporary).
(a) through (g) [Reserved].
(h) Time and manner of deposit--deposits required to be made by
electronic funds transfer--(1) In general. Section 6302(h) of the
Internal Revenue Code requires the Secretary to prescribe regulations
as may be necessary for the development and implementation of an
electronic funds transfer system to be used for the collection of
depository taxes as described in paragraph (h)(2) of this section.
Section 6302(h)(2) of the Code provides a phase-in schedule which sets
forth escalating minimum percentages of those depository taxes to be
deposited by electronic funds transfer, starting with the fiscal year
beginning October 1, 1993, and ending September 30, 1994. This section
prescribes the rules necessary for implementing an electronic funds
transfer system for collection of depository taxes and for effecting an
orderly and expeditious phase-in of that system.
(i) Period prior to January 1, 1995. The Commissioner of Internal
Revenue has entered into binding agreements with third party bulk data
processors. These agreements require that the third party bulk
processors deposit certain depository taxes of certain of their
customers by electronic funds transfer in a manner designed to ensure
that those amounts are credited to the general account of the Treasury
by the deposit due date. A taxpayer who is a customer of a third party
bulk data processor that is a party to such an agreement may have its
deposits that are subject to such agreement made by the processor until
the expiration or termination of the agreement. However, the taxpayer
continues to be responsible for the deposit of those depository taxes
that are not subject to such agreement.
(ii) Periods after December 31, 1994. (A) Taxpayers whose aggregate
deposits of the taxes imposed by Chapters 21 (Federal Insurance
Contributions Act), 22 (Railroad Retirement Tax Act), and 24
(Collection of Income Tax at Source on Wages) of the Internal Revenue
Code during a 12-month determination period exceed the applicable
threshold amount are required to deposit all depository taxes (as
described in paragraph (h)(2) of this section) due on and after the
applicable effective date by electronic funds transfer (as defined in
paragraph (h)(3) of this section) unless exempted under paragraph
(h)(4) of this section. In general, each applicable effective date has
one 12-month determination period. However, for the applicable
effective date January 1, 1996, there are two determination periods. If
the applicable threshold amount is exceeded in either of those
determination periods, the taxpayer becomes subject to the requirement
to deposit by electronic funds transfer, effective January 1, 1996. The
threshold amounts, determination periods, and applicable effective
dates are as follows:
------------------------------------------------------------------------
Applicable effective
Threshold amount Determination period date
------------------------------------------------------------------------
$78 million............ 1-1-93 to 12-31-93..... January 1, 1995.
47 million............. 1-1-93 to 12-31-93..... January 1, 1996.
47 million............. 1-1-94 to 12-31-94..... January 1, 1996.
50 thousand............ 1-1-95 to 12-31-95..... January 1, 1997.
50 thousand............ 1-1-96 to 12-31-96..... January 1, 1998.
20 thousand............ 1-1-97 to 12-31-97..... January 1, 1999.
------------------------------------------------------------------------
(B) Once a taxpayer is required to deposit by electronic funds
transfer pursuant to paragraph (h)(1)(ii) of this section, the taxpayer
will continue to deposit by electronic funds transfer. Until such time
as a taxpayer is required by this section to deposit by electronic
funds transfer, the taxpayer may voluntarily make deposits by
electronic funds transfer, or must make deposits following the rules of
Sec. 31.6302-1(h), pertaining to deposits by Federal tax deposit (FTD)
coupon.
(C) Any taxpayer whose deposits are being made by a third party
bulk data processor pursuant to an agreement described in paragraph
(h)(1)(i) of this section, and who is required to deposit by electronic
funds transfer pursuant to this paragraph (h)(1)(ii), may have its
deposits that are subject to such agreement made by the third party
bulk data processor until the expiration or termination of the
agreement. The taxpayer, however, is responsible for making deposits by
electronic funds transfer of those depository taxes not subject to such
agreement.
(2) Taxes required to be deposited by electronic funds transfer.
Any taxpayer who is required under paragraph (h)(1)(ii) of this section
to deposit by electronic funds transfer the taxes imposed by chapters
21, 22, and 24 of the Internal Revenue Code must also deposit by
electronic funds transfer, beginning with the same applicable effective
date, the taxes required to be deposited under Secs. 1.6302-1, 1.6302-
2, 1.6302-3 of this chapter, 31.6302(c)-3, and 40.6302(c)-1 of this
chapter.
(3) Electronic funds transfer defined. For purposes of this
section, an electronic funds transfer is any transfer of depository
taxes made in accordance with Revenue Procedure 94-48, 1994-29 I.R.B.
(see Sec. 601.601(d)(2) of this chapter), or in accordance with
procedures subsequently published by the Commissioner.
(4) Exemptions. The Commissioner of Internal Revenue will identify
by guidance published in the Internal Revenue Bulletin those categories
of taxpayers, if any, that are to be exempted from the requirement to
deposit by electronic funds transfer. (See Sec. 601.601(d)(2)(ii)(b) of
this chapter.)
(5) Separation of deposits. A deposit for one return period must be
made separately from a deposit for another return period.
(6) Payment of balance due. If the aggregate amount of taxes
reportable on the applicable tax return for the return period exceeds
the total amount deposited by the taxpayer with regard to the return
period, then the balance due must be remitted in accordance with the
applicable form and instructions.
(7) Time deemed deposited. A deposit by electronic funds transfer
will be deemed made--
(i) At the time a debit is made (the amount is withdrawn from the
taxpayer's account) if the Government's authorized financial agent
debits the taxpayer's account; or
(ii) In all other cases, at the time the funds are credited to
Treasury's general account.
(8) Time deemed paid. In general, amounts deposited under this
paragraph (h) will be considered paid at the time deemed deposited
under paragraph (h)(7) of this section, or on the last day prescribed
for filing the return (determined without regard to any extension of
time for filing the return), whichever is later. In the case of the
taxes imposed by chapters 21 and 24 of the Internal Revenue Code, for
purposes of section 6511 and the regulations thereunder (relating to
the period of limitation on credit or refund), if an amount is
deposited prior to April 15th of the calendar year immediately
succeeding the calendar year that includes the period for which the
amount was deposited, the amount will be considered paid on April 15th.
Par. 7. Section 31.6302(c)-3T is added to read as follows:
Sec. 31.6302(c)-3T Use of Government depositaries in connection with
tax under the Federal Unemployment Tax Act--deposits required to be
made by electronic funds transfer after December 31, 1994 (temporary).
(a) through (b) [Reserved].
(c) Manner of deposit--deposits required to be made by electronic
funds transfer. For the requirement to deposit tax under the Federal
Unemployment Tax Act by electronic funds transfer, see Sec. 31.6302-
1T(h). A taxpayer not required to deposit by electronic funds transfer
pursuant to Sec. 31.6302-1T(h) remains subject to the rules of
Sec. 31.6302(c)-3(b).
PART 40--EXCISE TAX PROCEDURAL REGULATIONS
Par. 8. The authority citation for part 40 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 40.6302(c)-1T also issued under 26 U.S.C. 6302 (a) and
(h). * * *
Par. 9. Section 40.6302(c)-1T is added to read as follows:
Sec. 40.6302(c)-1T Use of Government depositaries--deposits required
to be made by electronic funds transfer after December 31, 1994
(temporary).
(a) through (d)(1) [Reserved].
(d)(2) Deposits by electronic funds transfer. For the requirement
to deposit excise taxes by electronic funds transfer, see Sec. 31.6302-
1T(h) of this chapter. A taxpayer not required to deposit by electronic
funds transfer pursuant to Sec. 31.6302-1T(h) of this chapter remains
subject to the rules of Sec. 40.6302(c)-1(d).
Michael P. Dolan,
Acting Commissioner of Internal Revenue.
Approved: June 27, 1994.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-16477 Filed 7-6-94; 1:01 pm]
BILLING CODE 4830-01-U
