Electronic Funds Transfers of Federal Deposits
DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 1, 20, 25, 31, and 40 [TD
8828] RIN 1545-AW41
TITLE: Electronic Funds Transfers of Federal Deposits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations relating to the
deposit of Federal taxes by electronic funds transfer (EFT).
The final regulations affect certain taxpayers required to make
deposits of Federal taxes. For calendar years beginning after 1999,
the final regulations provide rules under which certain taxpayers
must make deposits by EFT.
DATES: Effective Date: These regulations are effective July 13,
1999.
Applicability Date: For dates of applicability, see §31.6302-1(h)
(2).
FOR FURTHER INFORMATION CONTACT: Vincent Surabian, (202) 622-4940
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains 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 March 23,
1999, a notice of proposed rulemaking was published in the Federal
Register (64 FR 13940). A public hearing originally scheduled in the
notice of proposed rulemaking for May 11, 1999, was canceled as
there were no requests to speak. Three written comments were
received.
After consideration of all comments, the proposed regulations are
adopted by this Treasury decision.
Explanation of Provisions Section 6302(h) requires that, beginning
in fiscal year 1999, 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 final regulations increase the deposit
threshold to $200,000 in aggregate Federal tax deposits during a
calendar year.
The new $200,000 aggregate deposits threshold will be applied
initially to 1998 deposits, and taxpayers that exceed the threshold
in 1998 will be required to deposit by EFT beginning in 2000.
Taxpayers that first exceed the threshold in 1999 or a subsequent
year will similarly be required to deposit by EFT beginning in the
second succeeding calendar year. 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.
The final regulations also 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.
Public Comments Two commentators on the proposed regulations opposed
the increase in the threshold to $200,000. They were concerned that
financial institutions and the Federal government would have to
continue to process large volumes of checks and paper coupons.
In addition, they stated that the increase in threshold does not
seem justified since the requirement to deposit by EFT does not
require an investment by the taxpayer in new technology and greater
use of EFT payment methods will contribute to the maintenance of a
secure and efficient payment system. The two commentators conclude
that the Federal government should continue to use penalty waivers
until taxpayers become adept at using the system of depositing by
EFT efficiently and accurately. The two commentators did, however,
agree with the use of an aggregate deposits test to determine
whether a taxpayer is required to deposit by EFT.
As stated in the notice of proposed rulemaking, the IRS and Treasury
Department are confident that most taxpayers currently required to
deposit by EFT have come to appreciate the simplicity and
convenience of the EFT system and will continue to deposit by EFT on
a voluntary basis. Despite the increase in the threshold, the
continued participation of these taxpayers, coupled with continuing
efforts to encourage voluntary enrollment, should ensure the
Congressionally-mandated 94 percent of collections by EFT. A lower
threshold would, as the commentators suggest, result in even greater
use of the EFT system. The IRS and Treasury Department have
concluded, however, that the $200,000 threshold appropriately
balances concerns relating to small businesses against the benefit
of reduced paper transactions.
A third comment suggested removal of the rule in 31 CFR part 203
prohibiting banks from charging fees for processing paper coupon
deposits. The regulations in 31 CFR part 203 are issued by the
Financial Management Service (FMS) of the Treasury Department,
rather than by the Internal Revenue Service. FMS has received
similar comments and announced, in the preamble of the 1998
regulations revising 31 CFR part 203 (63 FR 5643), that it intends
to issue a notice of proposed rulemaking on removing this
prohibition.
Special Analyses It has been determined that this Treasury decision
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, the notice of proposed rulemaking that
preceded these regulations was 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 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.
26 CFR Part 40 Excise taxes, Reporting and recordkeeping
requirements.
Adoption of Amendments to the Regulations Accordingly, 26 CFR parts
1, 20, 25, 31, and 40 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
revising the entry for §1.6302-4 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6302-4 also issued under 26 U.S.C. 6302(a), (c), and (h).
* * *
Par. 2. Section 1.6302-4 is revised to read as follows:
§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 in part as follows:
Authority: 26 U.S.C. 7805 * * * Section 20.6302-1 also issued under
26 U.S.C. 6302(a) and (h). * * *
Par. 4. Section 20.6302-1 is added to read as follows:
§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 in part as follows:
Authority: 26 U.S.C. 7805 * * * Section 25.6302-1 also issued under
26 U.S.C. 6302(a) and (h). * * *
Par. 6. Section 25.6302-1 is added to read as follows:
§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 new paragraph (m).
8. Paragraph (j) is redesignated as new paragraph (k).
9. New paragraph (j) is added.
The additions and revisions read as follows:
§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. (A) * * *
(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 or after 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:
§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.
Commissioner of Internal Revenue
Approved:
Assistant Secretary of the Treasury
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