[Federal Register Volume 64, Number 133 (Tuesday, July 13, 1999)]
[Rules and Regulations]
[Pages 37675-37677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17517]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 31, and 40
[TD 8828]
RIN 1545-AW41
Electronic Funds Transfers of Federal Deposits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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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 Sec. 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
[[Page 37676]]
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 Sec. 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:
Sec. 1.6302-4 Use of financial institutions in connection with income
taxes; voluntary payments by electronic funds transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax imposed by subtitle A of the Internal Revenue Code,
including any payment of estimated tax. Such payment must be made in
accordance with procedures prescribed by the Commissioner.
PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,
1954
Par. 3. The authority citation for part 20 is amended by adding an
entry in numerical order to read 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:
Sec. 20.6302-1 Voluntary payments of estate taxes by electronic funds
transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax to which this part 20 applies. Such payment must be made
in accordance with procedures prescribed by the Commissioner.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 5. The authority citation for part 25 is amended by adding an
entry in numerical order to read 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:
Sec. 25.6302-1 Voluntary payments of gift taxes by electronic funds
transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax to which this part 25 applies. Such payment must be made
in accordance with procedures prescribed by the Commissioner.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Par. 7. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 8. Section 31.6302-1 is amended as follows:
1. The heading for paragraph (h)(2) is revised.
2. A heading is added for paragraph (h)(2)(i).
3. New paragraph (h)(2)(i)(C) is added.
4. Paragraph (h)(2)(ii) is revised
5. Paragraph (h)(2)(iii) is added.
6. Paragraph (m) is redesignated as paragraph (n).
7. Paragraph (k) is redesignated as 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:
[[Page 37677]]
Sec. 31.6302-1 Federal tax deposit rules for withheld income taxes and
taxes under the Federal Insurance Contributions Act (FICA) attributable
to payments made after December 31, 1992.
* * * * *
(h) * * *
(2) Applicability of requirement--(i) Deposits for return periods
beginning before January 1, 2000. (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:
Sec. 40.6302(a)-1 Voluntary payments of excise taxes by electronic
funds transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax to which this part 40 applies. Such payment must be made
in accordance with procedures prescribed by the Commissioner.
Charles O. Rossotti,
Commissioner of Internal Revenue.
Approved: July 2, 1999.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 99-17517 Filed 7-12-99; 8:45 am]
BILLING CODE 4830-01-U