[Federal Register Volume 61, Number 190 (Monday, September 30, 1996)]
[Proposed Rules]
[Pages 51186-51194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24949]


      

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Part VI





Department of the Treasury





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Fiscal Service



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31 CFR Part 203



Treasury Tax and Loan Depositaries and Payment of Federal Taxes; 
Proposed Rule

  Federal Register / Vol. 61, No. 190 / Monday, September 30, 1996 / 
Proposed Rules  

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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 203

RIN 1510-AA37


Treasury Tax and Loan Depositaries and Payment of Federal Taxes

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Internal Revenue Code mandates that certain taxpayers use 
electronic funds transfer (EFT) for the payment of Federal taxes. 
Temporary regulations published by the Internal Revenue Service (IRS) 
implement this requirement, providing guidance to taxpayers relating to 
the deposit of taxes using EFT mechanisms. These proposed regulations 
are necessary for the operation of the Electronic Federal Tax Payment 
System (EFTPS). The EFTPS is projected to begin operation in the fall 
of 1996. These regulations provide rules for financial institutions and 
Federal Reserve Banks that use EFT mechanisms to process Federal tax 
payments through the EFTPS. The regulations also update the rules 
governing Treasury's investment program. The Small Business Job 
Protection Act of 1996 provides that certain taxpayers are not required 
to begin using EFT until July 1, 1997 (rather than, as originally 
scheduled, on January 1, 1997). This change does not affect and is not 
addressed in these regulations.

DATES: Comments must be received on or before November 29, 1996.

ADDRESSES: Comments or inquiries may be mailed to Cynthia L. Johnson, 
Director, Cash Management Policy and Planning Division, Financial 
Management Service, Room 420, 401 14th Street, S.W., Washington, DC 
20227. A copy of this proposed rule is being made available for 
downloading from the Financial Management Service home page at the 
following address: http://www.ustreas.gov/treasury/bureaus/finman/.

FOR FURTHER INFORMATION CONTACT: Mark Matolak, Financial Program 
Specialist; Donald E. Clark, Financial Program Specialist; Cynthia L. 
Johnson, Director, Cash Management Policy and Planning Division, 401 
14th Street, S.W., Washington, D.C. 20227, (202) 874-6590; or Margaret 
Roy, Principal Attorney, at (202) 874-6680.

SUPPLEMENTARY INFORMATION:

Background

    Currently, 31 CFR Part 203 governs the designation of certain 
financial institutions as Treasury tax and loan (TT&L) depositaries; 
TT&L depositary participation in the paper-based Federal Tax Deposit 
(FTD) system; and investment of Treasury's excess operating cash in 
TT&L investments. This document proposes use of five new electronic 
methods of paying taxes, and proposes slight changes to the investment 
program.

Tax Payment Methods

    Pursuant to section 6302(h) of the Internal Revenue Code, the 
Secretary of the Treasury is to develop and implement an electronic 
funds transfer (EFT) system to be used for the collection of depository 
taxes, so that the taxes are credited to the General Account of the 
Treasury on the tax due date. See Pub. L. No. 103-182, Sec. 523, 107 
Stat. 2057, 2161 (1993); codified at 26 U.S.C. 6302(h). The Act 
mandates that a certain percentage of certain types of taxes be 
collected using EFT methods each year. To meet these requirements, the 
Financial Management Service (FMS) has, in conjunction with the 
Internal Revenue Service (IRS) and Federal Reserve Banks (FRB), devised 
the Electronic Federal Tax Payment System (EFTPS), which is an 
electronic system for reporting and paying Federal taxes. The EFTPS 
will benefit both taxpayers and the Federal Government by providing 
greater payment and reporting efficiencies and by expediting the 
availability of funds and investment decision-making information. These 
revisions will govern the processing of tax payments through the EFTPS 
by financial institutions and the FRBs.
    Currently, most depository taxes are paid using the paper-based FTD 
system, which requires the taxpayer to present its tax payment and a 
paper coupon to a financial institution designated by the Treasury 
Department (Treasury) as a TT&L depositary. The depositary stamps the 
coupon, forwards it to Treasury, and credits the payment to a non-
interest bearing TT&L account. The depositary retains the funds 
overnight. The next day the TT&L account is debited and the funds are 
either invested in obligations of the TT&L depositary or are 
transferred to Treasury's General Account (TGA) at the FRB.
    The effort to convert the current paper-based FTD system to an 
electronic system has been underway since 1990 with the use of the 
prototype ADEPT and TAXLINK systems. Most recently, TAXLINK was 
developed to test two methods of electronic payment: Automated Clearing 
House (ACH) debit and credit entries. These two methods are well 
established in both the Federal and private sectors. Using the ACH 
debit method, Treasury, through a financial agent and with the 
authorization of the taxpayer, sends an electronic debit entry to a 
taxpayer's account at the taxpayer's financial institution. Using the 
ACH credit method, the taxpayer authorizes its financial institution to 
send an electronic credit entry from the taxpayer's account to 
Treasury. After the initial authorization process, the financial 
institution must begin the ACH payment process at least one business 
day before the tax due date. Thus, ACH debit and credit entries are 
``future-day'' entries. These methods have proved successful in the 
TAXLINK program, and are incorporated into the EFTPS system.
    The EFTPS program also offers three other payment methods. These 
methods, Fedwire value, Fedwire non-value, and Direct Access, are 
different from ACH methods in that Treasury gains the value of the 
payment the same day that the payment is initiated. Thus, these three 
methods are called ``same-day'' payment methods. They are considered 
exception processing and are offered to accommodate the needs of 
certain taxpayers that do not have information available to initiate 
the transaction one business day prior to the tax due date, or to 
correct a deficiency in an ACH payment.
    Fedwire value is a funds transfer system owned and operated by the 
FRBs and currently is used by the FMS for collections. Fedwire non-
value is a new method of collection, which involves sending information 
and authorization to make payments over the FRBs' Fedwire system. The 
Direct Access method also involves sending information to the Federal 
Reserve, but uses a computer interface or a new application called the 
``Fedline Taxpayer Deposit Application.'' The FMS reserves the right to 
add additional methods of electronic funds transfer in the future, as 
appropriate.

Financial Institution Participation and Responsibilities

    The EFTPS will increase the ability of all financial institutions 
to participate in processing Federal tax payments. Currently, financial 
institutions must be designated as TT&L depositaries to process FTD 
payments, and must pledge collateral to secure the tax collections they 
process. In contrast, financial institutions processing tax payments 
under the EFTPS need not be designated as TT&L depositaries and need 
not pledge collateral, unless they elect to participate in Treasury's 
investment program.

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    In order to provide maximum flexibility to taxpayers and financial 
institutions, the FTD system is not being eliminated at this time. 
However, the FMS anticipates that by 1999, it will transition those 
taxpayers using the FTD system to another form of payment, such as a 
lockbox arrangement. The proposed regulations governing the FTD system 
are not substantially changed from the current rule.
    Financial institutions which process EFTPS payments for their 
taxpayer customers have the following responsibilities: assisting 
taxpayers in enrolling in the system; initiating and responding to ACH 
prenotification entries; processing both ACH and/or same-day 
transactions; and providing a transaction trace number to the taxpayer 
as evidence that the taxpayer has completed those actions necessary to 
initiate a tax payment. By contract with the taxpayers, financial 
institutions may impose conditions to making payments, consistent with 
these regulations and applicable law.
    To assist in the processing of the tax payments and tax 
information, the FMS has designated two financial institutions as 
Treasury's financial agents. These two institutions will enroll all 
mandated and voluntary EFT taxpayers in the EFTPS, compile payment 
information for Treasury, and in the case of the ACH debit method, 
originate the debit entries to the taxpayer's financial institution. In 
addition, the FRBs, in their capacity as fiscal agents for Treasury, 
play a role in the system by providing same-day reporting and payment 
mechanisms.
    In general, this rulemaking proposes to place liability for errors 
on the party making the errors. If the taxpayer properly instructs the 
financial institution and complies with all requirements of its 
financial institution, and the financial institution is late in 
transmitting the tax payment to Treasury, then the FMS will charge the 
financial institution for the lost value of funds.
    The regulations provide that, by processing these transactions, the 
financial institution authorizes the FRB to charge the interest to the 
financial institution's reserve account. This interest provision serves 
the dual purposes of encouraging financial institutions to follow 
efficient procedures, and of recovering the value of the funds for the 
Government.
    The two financial institutions designated as Treasury's financial 
agents to perform services such as compiling payment information, and 
originating ACH debit entries, are prohibited from charging taxpayers 
for these services.

Treasury's Investment Program

    In addition to providing guidance for financial institutions in 
processing tax payments, these regulations also govern Treasury's 
investment program. Under that program, Treasury invests in open-ended, 
interest-bearing obligations of the financial institution held in a 
``note balance.'' To receive investments, a financial institution must 
be designated as a TT&L depositary and must post collateral.
    Currently, funds for investment are derived from FTD payments. With 
the implementation of the EFTPS, electronic payments also will be a 
source of funds.
    For TT&L note option depositaries processing EFTPS payments, an 
important consideration in selecting an electronic payment mechanism is 
the availability of funds to Treasury's investment program. Of the five 
EFT methods, Fedwire value is the least appealing to both Treasury and 
TT&L note option depositaries. Under Fedwire value, monies collected 
are not directly invested in interest-bearing obligations of TT&L note 
option depositaries, but instead are credited first to the TGA at the 
FRB. Use of Fedwire value thus not only diverts funds from the banking 
system, but also delays Treasury's investment opportunities.

Related Rules

    Regulations promulgated by the IRS govern the rights and 
responsibilities of taxpayers using the EFTPS. See temporary 
regulations published at 59 FR 35,414 and 61 FR 11548. The ACH debit 
and credit entries covered by this Part also will be subject to 31 CFR 
Part 210. The FMS published for comment proposed revisions to Part 210 
on September 30, 1995. (See 59 FR 50,112). The FMS anticipates issuing 
a revised notice of proposed rulemaking for Part 210 in the near 
future. Publication of the revisions to 31 CFR Part 203 at this time is 
important because of the dramatic increase in volume of EFT tax 
payments expected as the EFTPS is implemented. Procedural instructions 
for financial institutions on the EFTPS will be found in the Treasury 
Financial Manual, and FRB Operating Circulars.

Comments

    The FMS invites comments on all aspects of these proposed 
regulations. The FMS is interested in how these rule changes may affect 
the banks' participation in this program and their relationships with 
their customers. In particular, comments are requested on the 
following:
    1. Section 203.13 of the proposed regulations provides that the FMS 
may establish that ACH credit entries made at the direction of 
taxpayers be delivered to the FRB by a deadline that is different from 
that currently required for ACH credit entries.
    The FMS anticipates that if a different deadline is required, it 
would be approximately 11:00 p.m. on the day before the entry is to 
settle. This potential deadline ensures sufficient time for the 
transfer of credit entry information to Treasury for purposes of 
maximizing the timely investment of tax receipts.
    2. In Sec. 203.13(c)(1) of the proposed regulations, financial 
institutions are required to send an ACH prenotification entry for each 
new taxpayer paying taxes using the ACH credit entry method. This entry 
may be in the form of a zero dollar ACH entry.
    This requirement is to validate taxpayer data to ensure that future 
payments can be posted to the credit of the correct taxpayer.
    3. Section 203.6(a) of the proposed regulations allows depositaries 
the option of either electing to continue to process paper-based FTDs, 
or choosing not to process such FTDs. This section affords financial 
institutions maximum flexibility to determine the services they wish to 
offer, and relies on market forces to provide sufficient services.
    4. The FMS is contemplating restricting the use of the same-day 
options (Fedwire non-value and Direct Access) to TT&L note option 
depositaries. This action will ensure that tax payments will remain 
within the commercial banking system by flowing directly to TT&L note 
option depositaries, thereby maximizing Treasury's investment 
opportunities.
    5. What effects, if any, these changes have on the business 
relationships of financial institutions with taxpayer/customers and/or 
with the Government?

Section by Section Analysis

    The following lists the proposed sections, and notes the changes 
from the current regulation.
    1. Subpart A--General Information--Secs. 203.1-203.9 generally 
update the current rule, with no substantive changes.
    Several new definitions are added to Sec. 203.2 (Definitions) to 
reflect the new methods of payment; other definitions are updated and 
clarified. Sections 203.3 and 203.4, regarding financial institution 
eligibility and application for depositary status, are revised, with 
minor nonsubstantive changes, from Sec. 203.3 of the current rule. 
Section 203.5 regarding the depositary agreement, is based on current 
Sec. 203.6. Section 203.6, regarding the obligations of the

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depositary, updates current Sec. 203.7 and adds a provision regarding 
the obligation of a depositary which only processes electronic 
payments.
    Section 203.7 (Compensation for Services) retains the intent of 
current Sec. 203.13, and adds that the Federal Government may decide 
not to compensate financial institutions for processing tax payments. 
Section 203.8 combines the information in current Secs. 203.11 and 
203.15 regarding termination of depositary status and change of 
options. Section 203.9 (Additional Instructions) combines references to 
procedural instructions and Federal Reserve instructions.
    2. Subpart B--Electronic Federal Tax Payments--Secs. 203.10-203.17 
are entirely new; the current rule provides only for paper tax 
payments. Section 203.10 defines the scope of the subpart and states 
that financial institutions which process electronic tax payments shall 
adhere to the provisions of Part 203.
    Section 203.11 describes the financial institution's responsibility 
in processing taxpayer enrollments. Financial institutions shall verify 
enrollment information and sign the enrollment form. The enrollment 
information must be transmitted to Treasury's financial agent in paper 
form and may also be transmitted electronically.
    Section 203.12 describes generally the five types of electronic 
payment methods.
    Section 203.13 lists the responsibilities of financial institutions 
in originating and receiving ACH credit and debit entries. Financial 
institutions are required to verify the accuracy of the first entry 
sent to or from Treasury, in order to ensure that the taxpayer's 
payment will be credited correctly. This section also states that 
credits sent by financial institutions can only be reversed with the 
approval of the IRS.
    Section 203.14 lists the responsibilities of the financial 
institutions in originating same-day payments. Same-day payments must 
be received by 2:00 p.m. FRB head office local zone time. If not 
received by that time, the FRB will return the payments to the 
financial institution. A financial institution may obtain a reversal of 
a payment prior to 2:00 p.m., but, after that time, the financial 
institution may obtain a reversal only in certain circumstances and 
only with the assent of the IRS. Further, the financial institution 
must be prepared to supply the taxpayer with a transaction trace 
number, in case of questions regarding the payment.
    Section 203.15 imposes late fees on financial institutions which 
delay the transmission of the tax payment. These late fees are similar 
to those currently imposed by Sec. 203.10. Generally, the regulations 
attempt to recover the value of funds lost due to late payments. 
Financial institutions will not be charged late fees when the delay or 
non-payment is due to the taxpayer failing to satisfy financial 
institution conditions.
    Section 203.16 explains that all debit entries to the Treasury are 
examined for prior authorization. In the unlikely event that such an 
unauthorized entry is posted to the TGA, this section imposes a higher 
rate of interest on the financial institution originating the entry.
    Section 203.17 provides an administrative appeal process for 
financial institutions which are assessed late fees or interest 
charges.
    3. Subpart C--Federal Tax Deposits--Secs. 203.18-203.20 are modeled 
on current Secs. 203.5, 203.9 and 203.10, governing the acceptance and 
processing of FTD coupons. Definitions of classes of depositaries in 
current Secs. 203.9(a) and 203.10(a) are deleted and will be contained 
in procedural instructions.
    4. Subpart D--Investment Program--Secs. 203.22-203.25 describe 
Treasury's investment program and collateral security requirements. 
This is the program in which Treasury invests in obligations of the 
TT&L note option depositary using tax payments transmitted by the 
depositary; and/or makes direct or special direct investments, which 
are additional funds invested in depositary obligations.
    Section 203.25(f) is modeled on existing Sec. 203.14(f)(1). The FMS 
has in the past received inquiries regarding its interpretation of 
existing Sec. 203.14(f)(1). The existing provision provides that in the 
event of a depositary's insolvency, the pledged collateral is available 
to satisfy any claim of the United States. The FMS interprets this 
provision broadly. Specifically, in the event a depositary is placed in 
receivership, existing Sec. 203.14(f)(1) authorizes the FMS to apply 
the collateral to satisfy any claim of the United States, including, 
but not limited to, claims arising out of the depositary relationship 
for which the collateral was originally pledged. This position is 
consistent with the FMS' longstanding interpretation of Part 203.
    Proposed Sec. 203.25(f) expands Treasury's authority to liquidate 
collateral pledged by TT&L depositaries in the event the depositary 
fails to pay timely amounts owed to the United States. This provision 
is calculated to protect the Federal Government from loss.
    The list of acceptable securities found at current Sec. 203.14(d) 
is deleted and will be contained in procedural instructions.

Regulatory Analysis

    The regulations are not a significant regulatory action as defined 
in Executive Order 12866. Accordingly, a regulatory assessment is not 
required. It is hereby certified that this revision will not have a 
significant economic impact on a substantial number of small entities. 
Therefore, a regulatory flexibility analysis is not required. This 
change will not impose significant costs on small businesses. It is 
expected that costs, if any, associated with electronic tax processing 
will be offset by cost savings resulting from reductions in the 
paperwork burden and the availability of a user-friendly electronic tax 
collection system.

List of Subjects in 31 CFR Part 203

    Banks, Banking, Electronic Funds Transfers, Taxes.

    For the reasons set out in the preamble, 31 CFR part 203 is 
proposed to be revised to read as follows:

PART 203--TREASURY TAX AND LOAN DEPOSITARIES AND PAYMENT OF FEDERAL 
TAXES

Subpart A--General Information

Sec.
203.1  Scope.
203.2  Definitions.
203.3  Financial institution eligibility for designation as a 
Treasury tax and loan depositary.
203.4  Designation of financial institutions as Treasury tax and 
loan depositaries.
203.5  Parties to the agreement.
203.6  Obligations of the depositary.
203.7  Compensation for services.
203.8  Termination of agreement or change of election or option.
203.9  Additional instructions.

Subpart B--Electronic Federal Tax Payments

203.10  Scope of the subpart.
203.11  Enrollment.
203.12  Electronic payment methods.
203.13  Future-day reporting and payment mechanisms.
203.14  Same-day reporting and payment mechanisms.
203.15  Electronic Federal Tax Payment System late fees.
203.16  Prohibited Automated Clearing House debits.
203.17  Appeal and dispute resolution.

Subpart C--Federal Tax Deposits

203.18  Scope of the subpart.
203.19  Tax deposits using Federal tax deposit coupons.
203.20  Note option.
203.21  Remittance option.

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Subpart D--Investment Program and Collateral Security Requirements for 
Treasury Tax and Loan Depositaries

203.22  Scope of the subpart.
203.23  Sources of balances.
203.24  Note balance.
203.25  Collateral security requirements.

    Authority: 12 U.S.C. 90, 265-266, 332, 391, 1452(d), 1464(k), 
1767, 1789a, 2013, 2122, and 3102; 26 U.S.C. 6302; 31 U.S.C. 321, 
323 and 3301-3304.

Subpart A--General Information


Sec. 203.1  Scope.

    The regulations in this part govern the processing of Federal tax 
payments by financial institutions and the Federal Reserve Banks (FRB) 
using electronic payment or paper methods; the designation of Treasury 
tax and loan (TT&L) depositaries; and the operation of the Treasury 
Department's (Treasury) investment program.


Sec. 203.2  Definitions.

    As used in this part:
    Advice of credit means the Treasury form (Standard Form 2284) used 
in the Federal Tax Deposit (FTD) system which is supplied to 
depositaries to use in summarizing and reporting deposits. Advice of 
credit information also may be delivered electronically.
    Automated Clearing House (ACH) credit entry means a transaction 
originated by a financial institution in accordance with applicable ACH 
association formats and applicable laws, regulations, and procedural 
instructions.
    Automated Clearing House (ACH) debit entry means a transaction 
originated by Treasury's financial agent, in accordance with applicable 
ACH association formats and applicable laws, regulations, and 
instructions.
    Business day means any day on which the FRB of the district is open 
to the public.
    Direct Access transaction means same-day Federal tax payment 
information transmitted by a financial institution directly to the 
Electronic Tax Application at a FRB using computer interface or the 
Fedline Taxpayer Deposit Application.
    Direct investment means placement of Treasury funds with a 
depositary and a corresponding increase in a depositary's note balance.
    Electronic Federal Tax Payment System (EFTPS) means that system 
through which taxpayers remit Federal tax payments electronically.
    Electronic Tax Application (ETA) means a subsystem of EFTPS that 
receives, processes, and transmits Federal tax payment information for 
taxpayers. ETA activity is comprised of Fedwire value transfers, 
Fedwire non-value transactions, and Direct Access transactions.
    Electronic Tax Application (ETA) reference number means the unique 
number assigned to each ETA transaction by a FRB.
    Federal funds rate means the Federal funds rate published weekly by 
the Board of Governors of the Federal Reserve System.
    Federal Reserve account means a reserve or clearing account held by 
a financial institution with an FRB.
    Federal Reserve Bank (FRB) head office local zone time (head office 
LZT) means the local time of the FRB head office through which a 
financial institution, or its authorized correspondent bank, sends a 
same-day payment to an FRB.
    Federal Reserve Bank of the district means the FRB that services 
the geographical area in which the depositary is located, or such other 
FRB that may be designated in an FRB operating circular.
    Federal tax deposit (FTD) means a tax deposit made using an FTD 
coupon.
    Federal tax deposit coupon (FTD coupon) means a paper form (form 
8109) supplied to a taxpayer by the Treasury for use in the FTD system 
to accompany deposits of Federal taxes.
    Federal Tax Deposit system (FTD system) means the paper-based 
system in which taxpayers present an FTD coupon (form 8109) and payment 
to a depositary or an FRB, which prepares an advice of credit listing 
the FTDs.
    Federal taxes means those Federal taxes or other payments specified 
by the Secretary as eligible for payment through the procedures 
prescribed in this part.
    Fedwire means the funds transfer system owned and operated by the 
FRBs.
    Fedwire non-value transaction means the same-day Federal tax 
payment information transmitted by a financial institution to an FRB 
using a Fedwire type 1090 message to authorize a payment.
    Fedwire value transfer means a Federal tax payment made by a 
financial institution using a Fedwire entry.
    Financial institution means any bank, savings bank, savings and 
loan association, credit union, or similar institution.
    Input Message Accountability Data (IMAD) means a unique number 
assigned to each Fedwire transaction by the financial institution 
sending the transaction to an FRB.
    Note option means that program available to a depositary under 
which Treasury invests in obligations of the depositary. The amount of 
such investments will be evidenced by an open-ended interest-bearing 
note balance maintained at the FRB of the district.
    Procedural instructions are the procedures contained in the 
Treasury Financial Manual, Volume IV (IV TFM). The FRBs may issue 
operating circulars consistent with the regulations in this part.
    Recognized insurance coverage means the insurance provided by the 
Federal Deposit Insurance Corporation, the National Credit Union Share 
Insurance Fund, or insurance organizations specifically qualified by 
the Secretary.
    Remittance option means that program available to a depositary that 
processes FTD payments, under which the amount of deposits credited by 
the depositary to the TT&L account will be withdrawn by the FRB for 
deposit to the Treasury's General Account on the day that the FRB 
receives the advices of credit supporting such deposits.
    Same-day payment means the following ETA payment options: (1) 
Direct Access transaction; (2) Fedwire non-value transaction; and (3) 
Fedwire value transfer.
    Secretary means the Secretary of the Treasury, or the Secretary's 
delegate.
    Special direct investment means the placement of Treasury funds 
with a depositary and a corresponding increase in a depositary's note 
balance, where the investment specifically is identified as a ``special 
direct investment'' and may be secured by collateral retained in the 
possession of the depositary pursuant to the terms of 
Sec. 203.25(c)(2)(i).
    Tax due date means the day on which a tax payment is due to 
Treasury, as determined by statute and IRS regulations.
    Transaction trace number means a unique number assigned by the 
taxpayer's financial institution to each ACH credit transaction and by 
Treasury's Financial Agent to each ACH debit transaction.
    Treasury's Financial Agent (TFA) means a financial institution 
designated as an agent of Treasury for processing EFTPS enrollments, 
receiving EFTPS tax payment information, and originating ACH debit 
entries on behalf of Treasury.
    Treasury's General Account (TGA) means an account maintained in the 
name of the United States Treasury at an FRB.
    Treasury tax and loan (TT&L) account means the Treasury account 
maintained by a depositary in which funds are credited by the 
depositary after receiving and collateralizing FTDs.

[[Page 51190]]

    Treasury tax and loan depositary (depositary) means a financial 
institution designated as a depositary by the FRB of the district for 
the purpose of maintaining a TT&L account and/or note balance.
    Treasury tax & loan (TT&L) rate of interest means the Federal funds 
rate less twenty-five basis points (i.e., 1/4 of 1 percent).


Sec. 203.3  Financial institution eligibility for designation as a 
Treasury tax and loan depositary.

    (a) To be designated as a TT&L depositary, a financial institution 
must be an FRB, or insured as a national banking association, state 
bank, savings bank, savings and loan, building and loan, homestead 
association, Federal home loan bank, credit union, trust company, or a 
U.S. branch of a foreign banking corporation, the establishment of 
which has been approved by the Comptroller of the Currency.
    (b) A financial institution shall possess the authority to pledge 
collateral to secure TT&L account balances and/or a note balance.
    (c) In order to be designated as a TT&L depositary for the purposes 
of processing tax deposits in the FTD system, a financial institution 
shall possess under its charter either general or specific authority 
permitting the maintenance of the TT&L account, the balance of which is 
payable on demand without previous notice of intended withdrawal and 
either general or specific authority permitting the maintenance of a 
note balance, which is payable on demand without previous notice of 
intended withdrawal.


Sec. 203.4  Designation of financial institutions as Treasury tax and 
loan depositaries.

    (a) Application procedures. An eligible financial institution 
seeking designation as a depositary and, thereby, the authority to 
maintain a TT&L account and/or a note balance shall file with the FRB 
Financial Management Service Form 458 ``Financial Institution Agreement 
and Application for Designation as a TT&L depositary,'' and Financial 
Management Service Form 459, ``Resolutions Authorizing the Financial 
Institution Agreement and Application for Designation as a TT&L 
depositary,'' certified by its board of directors. Financial Management 
Service Forms 458 and 459 are available upon request from the FRB.
    (b) Designation. Each financial institution satisfying the 
eligibility requirements and the application procedures will receive 
from the FRB notification of its specific designation as a TT&L 
depositary. A financial institution is not authorized to maintain a 
TT&L account or note balance until it has been designated as a TT&L 
depositary by the FRB. Depositaries processing tax payments in the FTD 
System are required to elect either the remittance or the note option.


 Sec. 203.5  Parties to the agreement.

    To be designated as a TT&L depositary, a financial institution 
shall enter into a depositary agreement with Treasury's fiscal agent, 
the FRB. By entering into this agreement, the financial institution 
agrees to be bound by this part, and instructions issued pursuant to 
this part.


Sec. 203.6  Obligations of the depositary.

    A depositary shall:
    (a) Administer a note balance, if not participating in the FTD 
System.
    (b) Administer a TT&L account and, if applicable, a note balance, 
if participating in the FTD System.
    (c) Comply with the requirements of Section 202 of Executive Order 
11246, entitled ``Equal Employment Opportunity'' as amended by 
Executive Orders 11375 and 12086, and the regulations issued thereunder 
at 41 CFR Chapter 60.
    (d) Comply with the requirements of Section 503 of the 
Rehabilitation Act of 1973, as amended, and the regulations issued 
thereunder at 41 CFR part 60-741, requiring Government contractors to 
take affirmative action to employ and advance in employment qualified 
individuals with disabilities.
    (e) Comply with the requirements of Section 503 of the Vietnam Era 
Veterans' Readjustment Assistance Act of 1972, as amended, 38 U.S.C. 
4212, Executive Order 11701, and the regulations issued thereunder at 
41 CFR parts 60-250 and 61-250 requiring contractors to take 
affirmative action to employ and advance in employment qualified 
special disabled veterans and Vietnam Era veterans.


Sec. 203.7  Compensation for services.

    Except as provided in the procedural instructions, Treasury will 
notcompensate financial institutions for servicing and maintaining the 
TT&L account, or for processing tax payments.


Sec. 203.8  Termination of agreement or change of election or option.

    (a) Termination by Treasury. The Secretary may terminate the 
agreement of a depositary at any time upon notice to that effect to 
that depositary, effective on the date set forth in the notice.
    (b) Termination or change of election or option by the depositary. 
A depositary may terminate its depositary agreement, or change its 
option or election, consistent with this part, by submitting notice to 
that effect in writing to the FRB effective at a prospective date set 
forth in the notice.


Sec. 203.9  Additional instructions.

    Procedural instructions on this part are found in the Treasury 
Financial Manual, Volume IV (IV TFM). In addition, each FRB may issue 
operating circulars and other instructions not inconsistent with this 
part or the Treasury Financial Manual, governing the handling of tax 
payments and TT&L accounts, and containing such provisions as are 
required or permitted by this part. These instructions and the terms of 
this part shall be binding on financial institutions that process tax 
payments and/or maintain a TT&L account or note balance under this 
part. By accepting or originating Federal tax payments, the financial 
institution agrees to be bound by this part, and instructions issued 
pursuant to this part.

Subpart B--Electronic Federal Tax Payments.


Sec. 203.10  Scope of the subpart.

    This subpart prescribes the rules by which financial institutions 
shall process Federal tax payment transactions electronically.


Sec. 203.11  Enrollment.

    (a) General. Taxpayers shall complete an enrollment process with 
the TFA prior to making their first electronic Federal tax payment. 
Taxpayers may enroll using either a paper-based or an electronic 
method.
    (b) Types of enrollment. (1) Paper. The TFA shall provide financial 
institutions and taxpayers with enrollment forms upon request. The 
taxpayer is responsible for completing the enrollment form, obtaining 
the required financial institution verification and signature, and 
returning the enrollment form to the TFA.
    (2) Electronic. A financial institution may choose to assist its 
customers with the enrollment process by offering electronic 
enrollment. If a financial institution chooses to offer electronic 
enrollment, the financial institution shall follow the procedural 
instructions and the instructions provided by the TFA. An authorized 
financial institution representative shall verify and sign the 
enrollment form and provide a paper copy of the completed enrollment 
form to the taxpayer for submission to the TFA.
    (c) Verification. If the taxpayer elects the ACH debit entry method 
of paying

[[Page 51191]]

taxes, either through the paper or electronic enrollment process, an 
authorized representative of the financial institution shall verify the 
accuracy of the financial institution routing number, taxpayer account 
number, and taxpayer account type. The authorized financial institution 
representative shall sign the enrollment form attesting to the accuracy 
of the financial institution information.


Sec. 203.12  Electronic payment methods.

    (a) General. Electronic payment methods for Federal tax payments 
available under this subpart include ACH credit entries, ACH debit 
entries, and same-day payments. Any financial institution that is 
capable of originating and/or receiving transactions for these payment 
methods by itself or through a correspondent, may do so on behalf of a 
taxpayer.
    (b) Conditions to making an electronic payment. Nothing contained 
in this part shall affect the authority of financial institutions to 
enter into contracts with their customers regarding the terms and 
conditions for processing payments, provided that such terms and 
conditions are not inconsistent with this subpart and applicable law 
governing the particular transaction type.
    (c) Payment of interest for time value of funds held. Treasury will 
not pay interest on any payments erroneously paid to Treasury and 
subsequently refunded to the financial institution.


Sec. 203.13  Future-day reporting and payment mechanisms.

    (a) General. A financial institution may receive an ACH debit 
entry, originated by the TFA at the direction of the taxpayer; or, a 
financial institution may originate an ACH credit entry, at the 
direction of the taxpayer. Taxpayers will be credited for the actual 
amount received by Treasury. Treasury will not credit taxpayers for any 
amount deducted for system charges.
    (b) ACH debit. A financial institution receiving an ACH debit entry 
originated by the TFA shall, as applicable:
    (1) Timely verify the information contained in the ACH 
prenotification entry;
    (2) Timely return to the FRB or other ACH processor a 
prenotification entry that contains an invalid account number or is 
otherwise erroneous or unprocessable;
    (3) Properly notify the TFA of incorrect information on entries 
received, using a Notification of Change entry; and
    (4) Timely return an entry not posted, e.g., a return or a 
contested dishonored return for acceptable return reasons, as set forth 
in the procedural instructions.
    (c) ACH credit. A financial institution originating an ACH credit 
entry at the direction of a taxpayer, by itself or through a 
correspondent, shall:
    (1) Originate an ACH prenotification that may be in the form of a 
zero dollar ACH entry. The originator may initiate an ACH credit entry 
no earlier than 10 calendar days after the date the prenotification was 
transmitted to an FRB or other ACH processor;
    (2) Format the ACH credit entry in the ACH format approved by 
Treasury for Federal tax payments;
    (3) Originate and deliver an ACH credit entry to the FRB or other 
ACH processor by the deadline, as specified by the FRB or Treasury, 
whichever is earlier, in order to meet the tax due date specified by 
the taxpayer;
    (4) Provide the taxpayer, upon request, a transaction trace number;
    (5) Process all ACH entries received from the FRB or other ACH 
processor on a timely basis.
    (d) ACH credit corrections. Correction of ACH credit entries must 
be approved in advance by the IRS. The financial institution will find 
procedures for requesting corrections in the procedural instructions. 
Once approval is received, corrections will be processed by the TFA.


Sec. 203.14  Same-day reporting and payment mechanisms.

    (a) General. A financial institution or its authorized 
correspondent may initiate same-day reporting and payment transactions 
on behalf of taxpayers. A same-day payment must be received by the FRB 
by 2:00 p.m., FRB head office LZT. Taxpayers will be credited for the 
actual amount received by Treasury. Treasury will not credit taxpayers 
for any amount deducted for system charges.
    (b) Fedwire Value transfer. To initiate a Fedwire value tax 
payment, the financial institution shall be a Fedwire participant and 
shall comply with the FRB's Fedwire format for tax payments. The 
taxpayer's financial institution shall provide, upon request by the 
taxpayer, the IMAD and the ETA reference numbers for a Fedwire value 
transfer. The financial institution may obtain the ETA reference number 
for Fedwire value transfers from its FRB by supplying the related IMAD 
number. Fedwire value transfers settle immediately to the TGA and thus 
are not credited to a depositary's note balance.
    (c) Fedwire non-value transaction. To initiate a Fedwire non-value 
tax payment, the financial institution shall be a Fedwire participant 
and shall comply with the FRB's Fedwire format for tax payments. The 
taxpayer's financial institution shall provide the taxpayer, upon 
request, the IMAD and ETA reference number for the Fedwire non-value 
transaction. The financial institution may obtain the ETA reference 
number for Fedwire non-value transactions from its FRB by supplying the 
related IMAD number.
    (1) For a note option depositary, tax payments made using the 
Fedwire non-value method will be credited to the depositary's note 
balance.
    (2) For a financial institution that is not a note option 
depositary, tax payments made using the Fedwire non-value method will 
be debited from the financial institution's Federal Reserve account and 
credited to the TGA on the day of the transaction. By initiating a 
Fedwire non-value transaction, a financial institution authorizes the 
FRB to debit its Federal Reserve account in the amount of the tax 
payment specified in the transaction.
    (d) Direct Access transaction. By initiating a Direct Access 
transaction, a financial institution authorizes the FRB to debit its 
Federal Reserve account or the Federal Reserve account of its 
designated correspondent in the amount of the tax payment specified in 
the transaction. The taxpayer's financial institution shall provide, 
upon request of the taxpayer, the ETA reference number for a Direct 
Access transaction.
    (1) For a note option depositary, tax payments made using Direct 
Access will be credited to the depositary's note balance.
    (2) For a financial institution that is not a note option 
depositary, tax payments made using Direct Access will be debited from 
the financial institution's Federal Reserve account, or the Federal 
Reserve account of its designated correspondent, and credited to the 
TGA on the day of the transaction.
    (e) Cancellations and reversals. The FRB may reverse a same-day 
transaction:
    (1) If the transaction:
    (i) Is originated by a financial institution after 2:00 p.m. FRB 
head office LZT;
    (ii) Has an unenrolled taxpayer identification number;
    (iii) Does not meet the edit and format requirements set forth in 
the procedural instructions;
    (2) At the direction of the IRS, for the following reasons:
    (i) Incorrect taxpayer name;
    (ii) Overpayment;
    (iii) Unidentified payment; or,
    (3) At the request of the financial institution that sent the same-
day transaction, if the request is made prior

[[Page 51192]]

to 2:00 p.m. FRB head office LZT on the day the payment was made.
    (f) Other than as stated in paragraph (e) of this section, Treasury 
is not obligated to reverse all or any part of a payment.


Sec. 203.15  Electronic Federal Tax Payment System late fees.

    (a) Circumstances subject to late fees. Treasury may assess a late 
fee on a financial institution in instances where a taxpayer that 
failed to meet a tax due date proves to the IRS that the delivery of 
tax payment instructions to the financial institution was timely and 
that the taxpayer satisfied the conditions imposed by the financial 
institution pursuant to Sec. 203.12(b).
    (b) Calculation of late fees. Any late fee assessed under this 
section shall be in the form of interest at the TT&L rate. The late fee 
will be assessed from the day the taxpayer specified that its payment 
should settle to Treasury until the receipt of the payment by Treasury.
    (c) Authorization to assess late fees. A financial institution that 
processes Federal tax payments made by electronic payment methods under 
this subpart is deemed to authorize the FRB to debit its Federal 
Reserve account or the account of its designated correspondent for any 
late fee assessed under this section. Upon the direction of Treasury, 
the FRB shall debit the Federal Reserve account of the financial 
institution or the account of its designated correspondent for the 
amount of the late fee.
    (d) Circumstances not subject to late fees. Treasury will not 
assess a late fee on a taxpayer's financial institution if a taxpayer 
fails to meet a tax due date because the taxpayer has not satisfied 
conditions imposed by the financial institution pursuant to 
Sec. 203.12(b). The burden is on the financial institution to establish 
the taxpayer has not satisfied the conditions.


Sec. 203.16  Prohibited Automated Clearing House debits.

    (a) General. The Treasury has instituted operational safeguards to 
scrutinize all debit entries sent to the Treasury. In the unlikely 
event an unauthorized debit entry is posted to the TGA, this section 
sets forth the liability of financial institutions originating such 
debits. Accordingly, a financial institution shall not originate an ACH 
debit to the TGA without the prior written permission of Treasury.
    (b) Liability. A financial institution that originates an 
unauthorized ACH debit entry that is posted to the TGA shall be liable 
to Treasury for the amount of the transaction and shall be liable for 
interest charges as specified in paragraph (d) of this section.
    (c) Authorization to recover principal and assess interest charge. 
By initiating an unauthorized ACH debit entry, a financial institution 
is deemed to authorize the FRB to debit its Federal Reserve account or 
the account of its designated correspondent for any principal and, if 
applicable, interest charge assessed by Treasury under this section.
    (d) Interest charge calculation. The interest charge shall be at a 
rate equal to the Federal funds rate plus two percent. The interest 
charge shall be assessed for each calendar day, from the day the TGA 
was debited to the day the TGA is recredited with the full amount due.


Sec. 203.17  Appeal and dispute resolution.

    (a) Appeal. A financial institution may appeal any late fee or 
interest charge assessed under either Sec. 203.15 or Sec. 203.16. An 
appeal must be received, in writing, by the Treasury officer identified 
in the procedural instructions, no later than 90 calendar days after 
the date of the charge. The financial institution shall submit 
information supporting its position and the relief sought.
    (b) Decision. Treasury will decide to: uphold the fee or charge; 
reverse the fee or charge; or mandate another action. Treasury's 
decision will be final.
    (c) Recoveries. In the event of an over or under recovery of late 
fees or interest charges, Treasury will reimburse, or instruct the FRB 
to credit or debit the Federal Reserve account of the financial 
institution or its designated correspondent, as appropriate.

Subpart C--Federal Tax Deposits


Sec. 203.18  Scope of the subpart.

    This subpart applies to all depositaries that accept FTD coupons 
and governs the acceptance and processing of those coupons.


Sec. 203.19  Tax deposits using Federal tax deposit coupons.

    (a) FTD coupons. A depositary that accepts FTD coupons shall, 
through any of its offices that accept demand and/or savings deposits:
    (1) Accept from a taxpayer, cash, a postal money order drawn to the 
order of the depositary, or a check or draft drawn on and to the order 
of the depositary, covering an amount to be deposited as Federal taxes 
when accompanied by an FTD coupon on which the amount of the deposit 
has been properly entered in the space provided. A depositary may 
accept, at its discretion, a check drawn on another financial 
institution, but it does so at its option and absorbs for its own 
account any float and other costs involved.
    (2) Issue a counter receipt when requested to do so by a taxpayer 
that makes an FTD deposit over the counter.
    (3) Place a stamp impression on the face of each FTD coupon in the 
space provided. The stamp shall reflect the date on which the tax 
deposit was received and the name and location of the depositary. The 
timeliness of the tax payment will be determined by reference to the 
date stamped by the depositary on the FTD coupon.
    (4) Credit, on the date of receipt, all FTD deposits to the TT&L 
account and administer that account pursuant to the provisions of this 
part.
    (5) Forward, each day, to the IRS Center servicing the geographical 
area in which the depositary is located, the FTD coupons for all FTD 
deposits received that day. The FTD coupons shall be accompanied by an 
advice of credit reflecting the total amount of all FTD coupons.
    (6) Establish an adequate record of all FTD deposits prior to 
transmittal to the IRS Center so that the depositary will be able to 
identify deposits in the event tax deposit coupons are lost in 
shipment. For tracking purposes, a record shall be made of each FTD 
deposit showing, at a minimum, the date of deposit, the taxpayer 
identification number, and the amount of the deposit. The depositary's 
copy of the advice of credit may be used to provide the necessary 
information if individual deposits are listed separately, showing date, 
taxpayer identification number, and amount.
    (7) Deliver its advices of credit to the FRB by the cutoff hour 
designated by the FRB for receipt of advices.
    (8) Not accept compensation from taxpayers for accepting deposits 
of Federal taxes and handling them as required by this section.
    (b) FTD deposits with Federal Reserve Banks. An FRB shall:
    (1) Accept an FTD deposit directly from a taxpayer when such tax 
deposit is:
    (i) Mailed or delivered by a taxpayer; and
    (ii) Provided in the form of cash or a check or postal money order 
payable to the order of that FRB: and,
    (iii) Accompanied by an FTD coupon on which the amount of the tax 
deposit has been properly entered in the space provided.
    (2) Issue a counter receipt, when requested to do so by a taxpayer 
that makes an FTD deposit over the counter; and,
    (3) Place, in the space provided on the face of each FTD coupon 
accepted

[[Page 51193]]

directly from a taxpayer, a stamp impression reflecting the name of the 
FRB and the date on which the tax deposit will be credited to the TGA. 
Timeliness of the Federal tax payment will be determined by this date. 
However, if such a deposit is mailed to an FRB, it shall be subject to 
the ``Timely mailing treated as timely filing and paying'' clause of 
the Internal Revenue Code (26 U.S.C. 7502); and,
    (4) Credit the TGA with the amount of the tax payment;
    (i) On the date the payment is received, if payment is made in 
cash; or,
    (ii) On the date the proceeds of the tax payment are collected, if 
payment is made by postal money order or check.


Sec. 203.20  Note option.

    (a) Late delivery of advices of credit. If an advice of credit does 
not arrive at the FRB before the designated cutoff hour for receipt of 
such advices, the FRB will post the funds to the note balance as of the 
next business day after the date on the advice of credit. This is the 
date on which funds will begin to earn interest for Treasury.
    (b) Transfer of funds from TT&L account to the note balance. For a 
depositary selecting the note option, funds equivalent to the amount of 
deposits credited by a depositary to the TT&L account shall be 
withdrawn by the depositary and credited to the note balance on the 
business day following the receipt of the tax payment.


Sec. 203.21  Remittance option.

    (a) FTD late fee. If an advice of credit does not arrive at the FRB 
before the designated cutoff hour for receipt of such advices, an FTD 
late fee in the form of interest at the TT&L rate will be assessed for 
each day's delay in receipt of such advice. Upon the direction of 
Treasury, the FRB shall debit the Federal Reserve account of the 
financial institution or the account of its designated correspondent 
for the amount of the late fee.
    (b) Withdrawals. For a depositary selecting the Remittance Option, 
the amount of deposits credited by a depositary to the TT&L account 
will be withdrawn upon receipt by the FRB of the advices of credit. The 
FRB will charge the depositary's Federal Reserve account or the account 
of the depositary's designated correspondent.

Subpart D--Investment Program and Collateral Security Requirements 
for Treasury Tax and Loan Depositaries


Sec. 203.22  Scope of the subpart.

    This subpart provides rules for TT&L depositaries on crediting note 
balances under the various payment methods; debiting note balances; and 
pledging collateral security.


Sec. 203.23  Sources of balances.

    Depositaries electing to participate in the investment program can 
receive Treasury's investments in obligations of the depositary from 
the following sources:
    (a) FTD deposits that have been credited to the TT&L account 
pursuant to subpart C of this part;
    (b) EFTPS ACH credit and ACH debit transactions, Fedwire non-value 
transactions, and Direct Access transactions pursuant to subpart B of 
this part; and
    (c) Direct investments and special direct investments pursuant to 
subpart D of this part.


Sec. 203.24  Note balance.

    (a) Additions. Treasury will invest funds in obligations of 
depositaries selecting the note option. Such obligations shall be in 
the form of open-ended, interest-bearing notes; and additions and 
reductions will be reflected on the books of the FRB of the district.
    (1) FTD system. A depositary processing tax deposits using the FTD 
system and electing the note option shall debit the TT&L account and 
credit its note balance as stated in 203.20(b).
    (2) EFTPS. (i) ACH credit and ACH debit. A note option depositary 
processing EFTPS ACH debit entries and/or ACH credit entries shall 
credit its note balance for the value of the transactions on the 
settlement day. Financial institutions may refer to the procedural 
instructions for information on how to ascertain the amount of the 
credit to the note balance;
    (ii) Fedwire non-value and Direct Access. A note option depositary 
processing Fedwire non-value and/or Direct Access transactions pursuant 
to subpart B of this part shall credit its note balance and debit its 
customer's account for the value of the transactions on the transaction 
date.
    (b) Other additions. Other funds from Treasury may be offered from 
time to time to certain note option depositaries through direct 
investments, special direct investments or other investment programs.
    (c) Note balance withdrawals. The amount of the note balance shall 
be payable on demand without previous notice. Calls for payment on the 
note will be by direction of the Secretary through the FRBs. On behalf 
of Treasury, the FRB shall charge the reserve account of the depositary 
or the depositary's designated correspondent on the day specified in 
the call for payment.
    (d) Interest. A note shall bear interest at the TT&L rate. Such 
interest is payable monthly by a charge to the Federal Reserve account 
of the depositary or its designated correspondent.
    (e) Maximum balance.
    (1) Note depositaries. A depositary selecting the note option shall 
establish a maximum balance for its note by providing notice to that 
effect in writing to the FRB. The maximum balance is the amount of 
funds for which a note option depositary is willing to provide 
collateral in accordance with Sec. 203.25(c)(1). That portion of any 
advice of credit or EFTPS tax payment, which, when posted at the FRB, 
would cause the note balance to exceed the maximum balance amount 
specified by the depositary, will be withdrawn by the FRB that day.
    (2) Direct investment depositaries. A note depositary that 
participates in the direct investment program will set a maximum 
balance for direct investment purposes which is higher than its peak 
balance normally generated by the depositary's advices of credit and 
EFTPS tax payment inflow.
    (3) Special direct investment depositaries. Special direct 
investments, while credited to the note balance, shall not be 
considered in setting the amount of the maximum balance or in 
determining the amounts to be withdrawn where a depositary's maximum 
balance is exceeded.


Sec. 203.25  Collateral security requirements.

    Financial institutions that process EFTPS tax payments, but are not 
TT&L depositaries, have no collateral requirements under this part. 
Financial institutions that are note option depositaries or remittance 
option depositaries have collateral security requirements, as follows:
    (a) Note option. (1) FTD deposits and EFTPS tax payments. A 
depositary shall pledge collateral security in accordance with the 
requirements of paragraphs (c)(1), (d), and (e) of this section in an 
amount that is sufficient to cover the pre-established maximum balance 
for the note, and, if applicable, the closing balance in the TT&L 
account which exceeds recognized insurance coverage. Depositaries shall 
pledge collateral for the full amount of the maximum balance at the 
time the maximum balance is established. If the depositary maintains a 
TT&L account, the depositary shall pledge collateral security before 
crediting deposits to the TT&L account.

[[Page 51194]]

    (2) Direct investments. A note option depositary that participates 
in Treasury's direct investment program is not required to pledge 
collateral continuously in the amount of the pre-established maximum 
balance. However, each direct investment depositary shall pledge, no 
later than the day the direct investment is placed, the additional 
collateral in accordance with paragraphs (c)(1), (d), and (e) of this 
section to cover the total note balance including those funds received 
through the direct investment program. If a direct investment 
depositary has a history of frequent collateral deficiencies, it shall 
fully collateralize its maximum balance at all times.
    (3) Special direct investments. Before special direct investments 
are credited to a depositary's note balance, the note option depositary 
shall pledge collateral security in accordance with the requirements of 
paragraphs (c)(2) and (e) of this section, to cover 100 percent of the 
amount of the special direct investments to be received.
    (b) Remittance option. Prior to crediting FTD deposits to the TT&L 
account, a remittance option depositary shall pledge collateral 
security in accordance with the requirements of paragraph (c)(1), (d), 
and (e) of this section in an amount which is sufficient to cover the 
balance in the tax and loan account at the close of business each day, 
less recognized insurance coverage.
    (c) Deposits of securities. (1) Collateral security required under 
paragraphs (a)(1), (2), and (b) of this section shall be deposited with 
the FRB of the district, or with a custodian or custodians within the 
United States designated by the FRB, under terms and conditions 
prescribed by the FRB.
    (2)(i) Collateral security required under paragraph (a)(3) of this 
section shall be pledged under a written security agreement on a form 
provided by the FRB of the district. The collateral security pledged to 
satisfy the requirements of paragraph (a)(3) of this section may remain 
in the pledging depositary's possession and the fact that it has been 
pledged shall be evidenced by advices of custody to be incorporated by 
reference in the written security agreement. The written security 
agreement and all advices of custody covering collateral security 
pledged under that agreement shall be provided by the depositary to the 
FRB of the district. Collateral security pledged under the agreement 
shall not be substituted for or released without the advance written 
approval of the FRB of the district, and any collateral security 
subject to the security agreement shall remain so subject until an 
approved substitution is made. No substitution or release shall be 
approved until an advice of custody containing the description required 
by the written security agreement is received by the FRB of the 
district.
    (ii) Treasury's security interest in collateral security pledged by 
a depositary in accordance with paragraph (c)(2)(i) of this section to 
secure special direct investments is perfected without Treasury taking 
possession of the collateral security for a period not to exceed 21 
days from the day of the depositary's receipt of the special direct 
investment.
    (d) Acceptable securities. Unless otherwise specified by the 
Secretary, collateral security pledged under this section may be 
transferable securities, owned by the depositary free and clear of all 
liens, charges, or claims, of any of the classes listed in the 
procedural instructions. Collateral will be accepted at values assigned 
by the FRB of the district.
    (e) Assignment of securities. A TT&L depositary that pledges 
acceptable securities which are not negotiable without its endorsement 
or assignment may furnish, in lieu of placing its unqualified 
endorsement on each security, an appropriate resolution and irrevocable 
power of attorney authorizing the FRB to assign the securities. The 
resolution and power of attorney shall conform to such terms and 
conditions as the FRB shall prescribe.
    (f) Effecting payments of principal and interest on securities 
pledged as collateral. (1) General. If the depositary fails to pay, 
when due, the whole or any part of the funds received by it for credit 
to the TT&L account, and/or if applicable, its note balance; or 
otherwise violates or fails to perform any of the terms of this part, 
or fails to pay when due amounts owed to the United States or the 
United States Treasury; or if the depositary is closed for business by 
regulatory action or by proper corporate action, or in the event that a 
receiver, conservator, liquidator or any other officer is appointed; 
then the Treasury, without notice or demand, may sell, or otherwise 
collect the proceeds of all or part of the collateral, including 
additions and substitutions; and apply the proceeds, to satisfy any 
claims of the United States against the depositary. All principal and 
interest payments on any security pledged to protect the note balance 
(if applicable) and/or the TT&L account (if applicable), due as of the 
date of the insolvency or closure, or thereafter becoming due, shall be 
held separate and apart from any other assets and shall constitute a 
part of the pledged security available to satisfy any claim of the 
United States.
    (2) Payment procedures. (i) Subject to the waiver in paragraph 
(f)(2)(iii) of this section, each depositary (including, with respect 
to such depositary, an assignee for the benefit of creditors, a trustee 
in bankruptcy, or a receiver in equity) shall immediately remit each 
payment of principal and/or interest received by it with respect to 
collateral pledged pursuant to this section to the FRB of the district, 
as fiscal agent of the United States, and in any event shall so remit 
no later than 10 days after receipt of such a payment.
    (ii) Subject to the waiver in paragraph (f)(2)(iii) of this 
section, each obligor on a security pledged by a depositary pursuant to 
this section shall make each payment of principal and/or interest due 
with respect to such security directly to the FRB of the district, as 
fiscal agent of the United States.
    (iii) The requirements of paragraphs (f)(2)(i) and (ii) of this 
section are hereby waived for only so long as a pledging depositary 
avoids both termination from the program under Sec. 203.8; and also, 
those circumstances identified in paragraph (f)(1) which may lead to 
the collection of the proceeds of collateral or the waiver is otherwise 
terminated by Treasury.

    Dated: September 25, 1996.
Russell D. Morris,
Commissioner.
[FR Doc. 96-24949 Filed 9-27-96; 8:45 am]
BILLING CODE 4810-35-P