00-32568. Removal of Federal Reserve Banks as Federal Depositaries

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

This document contains proposed regulations which remove the Federal Reserve banks as authorized depositaries for Federal tax deposits. The regulations affect taxpayers who make Federal tax deposits using paper Federal Tax Deposit (FTD) coupons (Form 8109) at Federal Reserve banks.

DATES:

Written or electronically generated comments and requests for a public hearing must be received by March 26, 2001.

ADDRESSES:

Send submissions to: CC (REG-107176-00), 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 (REG-107176-00), 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 the IRS Internet site at http://www.irs.gov/​tax_​regs/​regslist.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations, Brinton T. Warren, [phone]; concerning submissions of comments and requests for a public hearing, Treena Garrett of the Regulations Unit at [phone] (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

This document contains proposed amendments to 26 CFR parts 1, 31, 35, 36, 40, 301, and 601 relating to Federal tax deposits under section 6302(c) of the Internal Revenue Code (Code). Section 6302(c) provides that the Secretary may authorize Federal Reserve banks, and incorporated banks, trust companies, domestic building and loan associations, or credit unions that are depositaries or financial agents of the United States, to receive any tax imposed under the internal revenue laws, in such manner, at such times, and under such conditions as the Secretary may prescribe. Pursuant to this authority, various regulations provide that Federal Reserve banks, as well as other authorized financial institutions, may receive certain Federal tax deposits.

In cooperation with the Treasury Department's Financial Management Service (FMS), the Federal Reserve System has been streamlining its Treasury Tax and Loan (TT&L) Operation to respond to the fact that the overwhelming majority of Federal Tax Deposits (FTDs) are now received electronically. The widespread adoption of electronic deposits by taxpayers is an important aspect of improving the efficiency, reliability, and cost-effectiveness of the Treasury Department's financial management. In general, compared to the universe of all tax deposits, the percentage of FTDs made with paper coupons has significantly declined. FTDs made with paper coupons at Federal Reserve banks now constitute only a tiny percentage of all tax deposits. For example, in Fiscal Year 1999, of the approximately 100 million Federal tax deposits, made by paper coupon and electronically, only about 270,000, or less than one half of one percent, were paper coupons presented at Federal Reserve banks. Additionally, the number of paper coupons presented at Federal Reserve banks has declined over twenty-five percent since 1997.

The Treasury Department has developed an array of other deposit options that are more convenient for taxpayers to use, and more economical to process, than deposits with Federal Reserve banks. For example, taxpayers may use their touch tone telephone or personal computer to make deposits 24 hours a day through the Electronic Federal Tax Payment System (EFTPS). For those taxpayers who still prefer paper coupons over electronic deposits, there are now more than 10,000 financial institutions nationwide that are designated as TT&L depositaries where taxpayers may make FTD deposits using paper coupons.

In response to the declining number of deposits being made with paper coupons at Federal Reserve banks, the Federal Reserve Bank of St. Louis was selected, effective May 1, 2000, to serve as the only Federal Reserve bank accepting FTDs. Even after this consolidation, however, it is no longer cost-effective for the Federal Reserve bank in St. Louis to process the small number of paper coupons it receives annually. Accordingly, these proposed regulations remove all Federal Reserve banks as depositaries for Federal taxes. To mitigate any difficulties for those taxpayers who still do not wish to use the deposit alternatives discussed above, the Treasury Department has authorized a financial agent to receive and process FTD payments through the mail, thereby maintaining a mail-in alternative for taxpayers who do not have an account with an authorized financial institution and who do not wish to use EFTPS. The address for this mail-in alternative is Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, Missouri, 63197.

Proposed Effective Date

The regulations, as proposed, apply to any deposits of Federal taxes made after the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 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 the regulations do not impose a collection of information 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, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and 8 copies) and electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

Drafting Information

The principal author of these regulations is Brinton T. Warren of the Office of Associate Chief Counsel, Procedure and Administration (Administrative Provisions and Judicial Practice Division). 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 35

• Employment taxes
• Income taxes
• Reporting and recordkeeping requirements

26 CFR Part 36

• Employment taxes
• Foreign relations
• Reporting and recordkeeping requirements
• Social security

26 CFR Part 40

• Excise taxes
• Reporting and recordkeeping requirements

26 CFR Part 301

• Employment taxes
• Estate taxes
• Excise taxes
• Gift taxes
• Income taxes
• Penalties
• Reporting and recordkeeping requirements

26 CFR Part 601

• Administrative practice and procedure
• Freedom of information
• Reporting and recordkeeping requirements
• Taxes

Proposed Amendments to the Regulations

Accordingly, and under the authority of 26 U.S.C. 7805 and 5 U.S.C. 301, 26 CFR parts 1, 31, 35, 36, 40, 301 and 601 are proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

§ 1.6302-1

[Amended]

Par. 2. Section 1.6302-1 is amended by removing the fifth sentence in paragraph (b)(1).

§ 1.6302-2

[Amended]

Par. 3. Section 1.6302-2 is amended by removing the third sentence in paragraph (b)(1).

PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

Par. 4. The authority citation for part 31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

§ 31.6302-1

[Amended]

Par. 5. Section 31.6302-1 is amended by removing the fourth sentence in paragraph (i)(3).

§ 31.6302

[Amended]

Par. 6. Section 31.6302(c)-3 is amended by removing the third sentence in paragraph (b)(2).

PARTS 1, 31, 35, 36, 40, 301, 601—[AMENDED]

Par. 7. In the list below, for each section indicated in the left column, remove the language in the middle column and add, if any, the language in the right column:

Section	Remove	Add
1.1461-1(a), effective January 1, 2001	a Federal reserve bank or	an
1.1502-5(a)(1)	commercial dispositary or Federal Reserve Bank	financial institution
1.6151-1(d)(1)	Federal Reserve Banks or
1.6302-1(b)(1) fourth sentence	214 or, at the election of the corporation, to a Federal Reserve bank	203
1.6302-1(b)(1) (as amended by paragraph 2) fifth sentence	the Federal Reserve bank or
1.6302-2(a)(1)(i)	a Federal Reserve bank or	an
1.6302-2(a)(1)(ii)	a Federal Reserve bank or	an
1.6302-2(a)(1)(iv)	a Federal Reserve bank or	an
1.6302-2(b)(1) second sentence	214 or, at the election of the withholding agent, to a Federal Reserve bank	203
1.6302-2(b)(1) (as amended by paragraph 3) third sentence	the Federal Reserve bank or	203
1.6302-3(a)	or with a Federal Reserve Bank
31.6071(a)-1(a)(1)	or by a Federal Reserve bank
31.6071(a)-1(c)	a Federal Reserve bank or by
31.6151-1(b)	Federal Reserve banks and
31.6302-1(c)(1)	a Federal Reserve bank or	an
31.6302-1(c)(2)(i)	a Federal Reserve bank or	an
31.6302-1(c)(3)	a Federal Reserve bank or	an
31.6302-1(i)(3)	214 or, at the election of the employer, to a Federal Reserve bank	203
31.6302-1(i)(5)	the Federal Reserve bank or
31.6302(c)-2A(b)(1)(i)	with a Federal Reserve bank or
31.6302(c)-2A(b)(3)	with a Federal Reserve bank or
31.6302(c)-3(a)(1)(i)	with a Federal Reserve bank or
31.6302(c)-3(a)(1)(ii)	with a Federal Reserve bank or
31.6302(c)-3(a)(3)	with a Federal Reserve bank or
31.6302(c)-3(b)(2) second sentence	214 or, at the election of the employer, to a Federal Reserve bank	203
31.6302(c)-3(b)(2) (as amended by paragraph 6) third sentence	the Federal Reserve bank or
35.3405-1T(e-10)	a Federal Reserve Bank or
36.3121(l)(10)-4	a Federal Reserve bank or	an
40.6302(c)-1(d)(1)	(214) or to a Federal Reserve bank	(203)
301.6302-1(a)	Federal Reserve banks and authorized commercial banks	authorized financial institutions
301.6302-1(b)(1)	Federal Reserve banks or authorized commercial banks	authorized financial institutions
301.6302-1(b)(2)	Federal Reserve banks or authorized commercial banks	authorized financial institutions
301.9100-5T(c)(3)	Federal Reserve banks and
601.401(a)(5) heading	Federal Reserve banks and
601.401(a)(5)(iii) first sentence	a Federal Reserve bank or	an
601.401(a)(5)(iii) second sentence	a Federal Reserve bank or	an
601.401(a)(5)(iv)	a Federal Reserve bank or a financial institution authorized in accordance with Treasury Department Circular No. 1079, revised, to accept remittances of these taxes for transmission to a Federal Reserve bank	an authorized financial institution

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.