[Federal Register Volume 72, Number 202 (Friday, October 19, 2007)]
[Rules and Regulations]
[Pages 59177-59187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5135]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 203

RIN 1510-AB01


Payment of Federal Taxes and the Treasury Tax and Loan Program

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Interim final rule.

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SUMMARY: As part of an ongoing effort to review and streamline its 
regulations, the Financial Management Service (FMS) has revised its 
regulation governing the Treasury Tax and Loan (TT&L) program. The 
changes update the rule to reflect the reorganization and enhancement 
of the TT&L program, including changes in terminology, and simplify the 
rule by deleting procedures and provisions that appear in other 
regulations or in the Treasury Financial Manual. FMS also has rewritten 
this regulation in plain language, thus making it clearer and easier to 
understand.

DATES: This interim final rule is effective October 19, 2007. Comments 
must be received by December 18, 2007.

ADDRESSES: The Financial Management Service began participating in the 
U.S. government's eRulemaking Initiative by publishing rulemaking 
information on www.regulations.gov. Regulations.gov offers the public 
the ability to comment on, search, and view publicly available 
rulemaking materials, including comments received on rules.
    Comments on this rule, identified by docket FISCAL-FMS-2007-0007, 
should only be submitted using the following methods:
     Federal eRulemaking Portal: www.regulations.gov. Follow 
the instructions on the Web site for submitting comments.
     Mail: Thompson Sawyer, Director, Investment Management 
Division, Financial Management Service, 401 14th Street, SW., 
Washington, DC 20227.
    The fax and e-mail methods of submitting comments on rules to FMS 
have been retired.
    Instructions: All submissions received must include the agency name 
(``Financial Management Service'') and docket number FISCAL-FMS-2007-
0007 for this rulemaking. In general, comments will be published on 
Regulations.gov without change, including any business or personal 
information provided. Comments received, including attachments and 
other supporting materials, are part of the public record and subject 
to public disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    You may also inspect and copy this proposed rule at: Treasury 
Department Library, Freedom of Information Act (FOIA) Collection, Room 
1428, Main Treasury Building, 1500 Pennsylvania Avenue, NW., 
Washington, DC 20220. Before visiting, you must call (202) 622-0990 for 
an appointment.

FOR FURTHER INFORMATION CONTACT: Thompson Sawyer, Director, Investment 
Management Division, at (202) 874-7150 or [email protected] 
or Ellen M. Neubauer, Senior Attorney, at (202) 874-6680 or 
[email protected].

SUPPLEMENTARY INFORMATION: 

1. Background

    The Treasury Tax and Loan (TT&L) program encompasses two separate 
components: A depositary component through which we collect Federal tax 
deposits and payments from business taxpayers for employee withholding 
and other types of taxes, and an investment component through which we 
invest short-term operating balances not needed for immediate cash 
outlays. Examples of the investment component are retention of tax 
deposits, direct investments, term investments or other investment 
programs. Approximately 950 TT&L depositaries borrow excess short-term 
Treasury operating funds by participating in the investment component 
of the TT&L program. Through agreements executed pursuant to Part 203, 
participating depositaries borrow Treasury funds in the form of a note 
secured with collateral pledged to

[[Page 59178]]

Treasury and pay interest to Treasury on these balances.
    We have revised Part 203 to reflect recent operational changes and 
changes in terminology to the TT&L program, and to streamline and 
simplify the regulation. Because the predominant intent of this 
rulemaking is to improve the clarity of the regulation, we have removed 
some procedural and technical requirements and provisions, such as 
references to specific Forms and filing instructions, from the existing 
regulation. All of the technical requirements that we have removed and 
that still apply are contained in Volume IV of the Treasury Financial 
Manual (see http://www.fms.treas.gov/tfm/vol4/index.html). Those 
technical requirements that don't still apply have been deleted. For 
example, current Sec.  203.10 sets forth procedures for financial 
institutions to enroll taxpayers in the Electronic Federal Tax Payment 
System (EFTPS) that no longer accurately reflect the actual process. 
Accordingly, we have deleted the substance of current Sec.  203.10 from 
the regulation. The current procedures for enrolling taxpayers in EFTPS 
are found in Volume IV of the Treasury Financial Manual, Part 1, 
Chapter 2200.
    In addition, we have removed some of the existing provisions of the 
regulation because they duplicate provisions of 31 CFR part 210, which 
sets forth the rules governing the Federal government's participation 
in the Automated Clearing House (ACH) system. For example, the 
substance of current Sec.  203.15 has been deleted from the interim 
final regulation because everything in current Sec.  203.15 is covered 
in 31 CFR part 210 (see Sec.  210.8(b)(1)). For the same reason, the 
substantive provisions of current Sec.  203.12, which address ACH 
credit and debit transactions, have been deleted.
    Although a number of new terms have been added to describe 
components of the TT&L program, most aspects of the operation of the 
program are not changing. For example, the new term ``Treasury 
Investment Program (TIP)'' is the automated system within the TT&L 
program that receives tax collection data, invests funds, and monitors 
collateral pledged to secure invested funds and public money. The new 
term ``Paper Tax System (PATAX)'' is the automated system within TIP 
that collects, adjusts, and reports paper Federal tax deposits (FTDs).
    The revisions to this rule reflect changes that have been made to 
the TT&L program over recent years. One of the most significant changes 
requires depositaries to have collateral in place before any funds are 
credited to their TIP main account balance or Special Direct Investment 
(SDI) account balance. Previously, a depositary had until the end of 
the day to have collateral in place after the funds were credited to 
its account. This change helps ensure that Treasury investments are 
adequately secured at all times. Another change, reflected in Sec.  
203.20, is that with the implementation of the Treasury Investment 
Program, transactions now post to financial institutions' reserve 
accounts throughout the day.
    Another change to the TT&L program occurred in 2001, when the 
Department of the Treasury announced that after December 31, 2000, 
Federal Reserve Banks (FRBs) would no longer accept FTD paper coupons. 
The change affected only a small percentage (less than one-half of one 
percent) of FTD deposits. It was no longer cost-effective for the FRBs 
to process the small number of FTD paper coupons they received 
annually. We have deleted Sec.  203.18(b) of the current regulation to 
reflect this change. Financial institutions that are TT&L depositaries 
will still accept paper coupons. For those taxpayers who do not have an 
account with a TT&L depositary or who do not wish to pay taxes 
electronically through EFTPS, FMS has a mail-in option.
    Other changes to the TT&L program and Part 203 are discussed in the 
section-by-section analysis below.

II. Section-by-Section Analysis

Section 203.1 Scope

    Amended Sec.  203.1 is substantively unchanged from current Sec.  
203.1, except that language has been added to clarify that there are 
various ways that a financial institution may participate in the TT&L 
program. A financial institution may choose to participate in the TT&L 
program by becoming an investor depositary, a retainer depositary, and/
or a collector depositary, or by processing tax payments through EFTPS. 
Amended Sec.  203.1 clarifies that a financial institution does not 
become a TT&L depositary, as defined, by processing tax payments 
through EFTPS.

Section 203.2 Definitions

    We have made a number of changes to the definitions set forth at 
Sec.  203.2. Several definitions have been deleted because they are not 
used in the interim final regulation. These include: ``Direct Access 
transaction,'' ``Electronic Tax Application,'' ``Electronic Tax 
Application reference number,'' ``Input Message Accountability Data,'' 
and ``Transaction trace number.'' Other terms defined in the current 
regulation are replaced by new terminology in the interim final 
regulation, including ``Federal Reserve account'' (replaced by 
``Reserve account''), ``Federal Reserve Bank of the district'' 
(replaced by ``Federal Reserve Bank (FRB)''), ``Federal Tax Deposit 
system'' (replaced by ``Paper Tax System (PATAX)''), ``Note option'' 
(replaced by ``Retainer depositary'' and ``Investor depositary''), and 
``Remittance option'' (replaced by ``Collector depositary''). Several 
new terms have been added to reflect enhancements to the TT&L program, 
including ``Capacity,'' ``Dynamic investment,'' ``Investment program,'' 
``Special Direct Investment (SDI) account balance,'' ``Term Investment 
Option (TIO) account balance,'' ``Treasury Investment Program (TIP),'' 
``Treasury Support Center (TSC),'' and ``TIP main account balance.'' A 
number of definitions have been reworded to make them easier to 
understand, but are substantively unchanged. Significant changes to 
specific definitions are discussed below.
Balance Limit
    The new term ``balance limit'' is defined and replaces the term 
``maximum balance'' in current Part 203. Although the term ``maximum 
balance'' is used in current Part 203, it is not defined.
Capacity
    The new term ``capacity'' is being added to refer to the additional 
amount of a direct investment or special direct investment that a 
designated depositary is willing to receive or the additional amount of 
tax deposits that a designated depositary is willing to retain. The TIP 
main account balance or SDI account balance, current collateral value, 
pending withdrawals, and pending investments are considered when 
determining capacity.
Collector Depositary
    The new term ``collector depositary'' is used to describe a 
depositary that uses the ``remittance option'' under current Part 203 
to better reflect the activity performed by the depositary.
Dynamic Investment
    The new term ``dynamic investment'' is used to describe investments 
placed throughout the day.
Federal Reserve Bank (FRB)
    The new term ``Federal Reserve Bank'' replaces ``Federal Reserve 
Bank of the district'' in current Part 203.

[[Page 59179]]

Investment Program
    The new term ``investment program'' is used to provide an all-
inclusive name for the programs through which Treasury invests excess 
operating cash. Examples of the investment component are retention of 
tax deposits, direct investments, and term investments. Depositaries do 
not have to accept paper-based Federal Tax Deposit coupons (PATAX) to 
participate in the investment program.
Investor Depositary
    The new term ``investor depositary'' is used to describe one of the 
two kinds of depositaries that are referred to as ``note option'' 
depositaries in the current regulation. An investor depositary is a 
depositary authorized to participate in the investment program. In the 
interim final regulation, the terms ``investor depositary'' and 
``retainer depositary'' are specific terms that replace the less 
specific term ``note option'' in the current regulation.
Paper Tax System (PATAX)
    The new term ``PATAX'' replaces the term ``Federal Tax Deposit 
System'' in current Part 203, to better reflect the activity performed 
by the system.
Reserve Account
    The new term ``Reserve account'' replaces ``Federal Reserve 
account'' in current Part 203. The definition incorporates the concept 
that a financial institution's reserve account may in some cases be the 
reserve account of the financial institution's correspondent bank.
Retainer Depositary
    The new term ``retainer depositary'' is used to describe a certain 
kind of depositary known as a ``note option'' depositary in the current 
regulation. A retainer depositary is a depositary that retains a 
portion of the Federal tax deposits it accepts. In the interim final 
regulation, the terms ``investor depositary'' and ``retainer 
depositary'' replace the less specific term ``note option'' in the 
current regulation. Retainer depositaries do not have to accept paper-
based Federal Tax Deposit coupons (PATAX).
Same-Day Payment
    The reference to direct access transactions in the current 
definition of ``same-day payment'' has been deleted in the amended 
definition because these transactions are no longer available. These 
transactions have been replaced by Fedwire[supreg] non-value 
transactions.
Special Direct Investment (SDI)
    This definition has been changed to delete the reference to note 
account and to add a reference to Borrower-In-Custody (BIC) 
arrangements.
SDI Account Balance
    The new term ``SDI account balance'' is being added because there 
is now a separate account for SDI funds. In the current regulation, SDI 
funds are allowed to be commingled with direct investment funds and 
retained tax deposits.
Term Investment Option (TIO) Account Balance
    The new term ``TIO account balance'' is being added to replace 
``Term note balance.''
Treasury Investment Program (TIP)
    The new term ``TIP'' is being added to describe the automated 
system within the TT&L program that receives tax collections, invests 
funds, and monitors collateral pledged to secure invested funds.
TIP Main Account Balance
    The new term ``TIP main account balance'' is being added to 
distinguish retained tax deposits and direct investments funds from SDI 
funds.
Treasury Support Center (TSC)
    The new term ``TSC'' is being added to refer to the centralized 
office located at an FRB that is responsible for monitoring collateral 
pledged and managing the TT&L program participation for designated 
depositaries.
Treasury Tax & Loan (TT&L) Depositary
    The definition of ``TT&L depositary'' has been changed to reflect 
new terminology.
TT&L Program
    The definition of ``TT&L program'' has been revised to add 
references to PATAX, TIP, and EFTPS.

Section 203.3 TT&L Depositaries

    We have added a new Sec.  203.3 to clarify the different kinds of 
TT&L depositaries and the circumstances in which a financial 
institution must be a TT&L depositary. A financial institution must be 
a TT&L depositary in order to participate in either PATAX or the 
investment program, but not in order to participate in EFTPS alone. 
There are three kinds of TT&L depositaries:
     Collector depositaries--depositaries that accept paper tax 
payments and may accept electronic tax payments, but that do not retain 
any such deposits in a TIP main account or accept direct or special 
direct investments. A collector depositary may accept term investments.
     Retainer depositaries--depositaries that accept electronic 
and/or paper tax payments and retain a portion of the tax deposits in a 
TIP main account balance but do not accept direct or special direct 
investments. A retainer depositary may accept term investments.
     Investor depositaries--depositaries that participate in 
the investment program by accepting direct investments, special direct 
investments, and dynamic investments. Investor depositaries may accept 
electronic and/or paper tax payments and may retain a portion of those 
tax deposits. An investor depositary may also accept term investments.

Section 203.4 Financial Institution Eligibility for Designation as a 
TT&L Depositary

    Amended Sec.  203.4 sets forth the criteria a financial institution 
must meet to be eligible for designation as a TT&L depositary. The 
criteria in the amended rule are unchanged from those in the current 
Sec.  203.3.

Section 203.5 Designation of Financial Institutions as TT&L 
Depositaries

    Amended Sec.  203.5 sets forth the substance of current Sec.  203.4 
with certain changes. Subsection (a) is unchanged except that language 
contained in current Sec.  203.6 which provides that Treasury will not 
compensate depositaries for servicing and maintaining a TT&L account, 
or for processing tax payments through EFTPS or P AT AX, has been 
relocated to Sec.  203.5(a).
    Amended Sec.  203.5(b) simplifies the current regulation by 
deleting references to specific forms, which are set forth in 
procedural instructions.

Section 203.6 Obligations of TT&L Depositaries

    We have not made any substantive change to the obligations of TT&L 
depositaries described in current Sec.  203.5.

Section 203.7 Termination of Agreement or Change of Election or Option

    We have not revised Sec.  203.7 except for minor wording changes.

Section 203.8 Application of Part and Procedural Instructions

    Amended Sec.  203.8 is unchanged from current Sec.  203.8 except 
that terminology has been updated.

[[Page 59180]]

Section 203.9 Scope of the Subpart

    We have not made any substantive changes to Sec.  203.9.

Section 203.10 Electronic Payment Methods

    Amended Sec.  203.10 sets forth the substance of current Sec.  
203.11. The second sentence of current Sec.  203.11(a) is deleted 
because it restates the point made in amended Sec.  203.9 that a 
financial institution need not be a TT&L depositary in order to process 
payments through EFTPS.

Section 203.11 Same-Day Reporting and Payment Mechanisms

    Details regarding some of the requirements of Fedwire[supreg] value 
transactions which are set forth in current Sec.  203.13(b) have been 
eliminated as unnecessary. References to direct access transactions set 
forth in current Sec.  203.713(d) have been deleted because these 
transactions are no longer available.

Section 203.12 EFTPS Interest Assessments

    We have not made any substantive changes to the application or 
calculation of EFTPS interest assessments.

Section 203.13 Appeal and Dispute Resolution

    We have not made any substantive changes to the appeal and dispute 
resolution procedures.

Section 203.14 Scope of the Subpart

    We have not changed the scope of subpart C.

Section 203.15 Tax Deposits Using FTD Coupons

    Amended Sec.  203.15 sets forth the provisions of current Sec.  
203.18, with a number of changes. We have deleted entirely the 
substance of Sec.  203.18(b), which provides that FRBs must accept FTDs 
directly from taxpayers and sets forth procedures governing 13 these 
transactions. FRBs no longer accept FTDs directly from the taxpayer. We 
also have deleted from this section many procedural steps that are 
adequately addressed in procedural instructions.

Section 203.16 Retainer and Investor Depositaries

    Amended Sec.  203.16 sets forth the substance of current Sec.  
203.19. The order of subsections (a) and (b) has been reversed.

Section 203.17 Collector Depositaries

    Amended Sec.  203.17 sets forth the substance of current Sec.  
203.20, except that the order of subsections (a) and (b) has been 
reversed.

Section 203.18 Scope of the Subpart

    We have not revised the scope of subpart D.

Section 203.19 Sources of Balances

    Amended Sec.  203.19 sets forth the substance of current Sec.  
203.22 with the addition of dynamic investments and term investments.

Section 203.20 Investment Account Requirements

    We have not changed the provisions governing TIP main account 
balances, SDI account balances, and no account balances. The section 
title was changed to reflect the inclusion of the no account balances.

Section 203.21 Collateral Security Requirements

    The classes of securities or instruments that are acceptable 
collateral to secure deposits and investments, and their respective 
valuations, as described in 31 CFR part 380, can be viewed at 
Treasury's Bureau of the Public Debt's Web site at 14 http://www.treasurydirect.gov/instit/statreg/collateral/collateral_fiscalprograms.htm#ttl
    Amended Sec.  203.21(c)(2) has been updated to reflect changes in 
the Uniform Commercial Code (which provides a private sector analogue 
for Treasury's BIC arrangements), relative to perfecting security 
interests in BIC collateral. Section 203.21(e) has also been changed. 
Under current Sec.  203.21(f), when a TT&L depositary pledges 
acceptable securities that are not negotiable without its endorsement 
or assignment, it may, in lieu of placing its unqualified endorsement 
on each security, provide an irrevocable power of attorney authorizing 
the FRB to assign the securities. Amended Sec.  203.21(e) states that 
by pledging acceptable securities which are not negotiable without the 
depositary's endorsement or assignment, a TT&L depositary, in lieu of 
placing its unqualified endorsement on each security, automatically 
grants the FRB an irrevocable power of attorney to endorse, assign or 
transfer the securities. The purpose of this change is to relieve both 
TT&L depositaries and the FRB from the administrative burden associated 
with providing a power-of-attorney each time such securities are 
pledged.

                  Derivation Chart for Revised Part 203
------------------------------------------------------------------------
               Old section                          New section
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203.1....................................  203.1
203.2....................................  203.2
----.....................................  203.3
203.3....................................  203.4
203.4....................................  203.5
203.5....................................  203.6
203.6....................................  203.5
203.7....................................  203.7
203.8....................................  203.8
203.9....................................  203.9
203.10...................................  Removed
203.11...................................  203.10
203.12...................................  Removed
203.13...................................  203.11
203.14...................................  203.12
203.15...................................  Removed
203.16...................................  203.13
203.17...................................  203.14
203.18...................................  203.15
203.19...................................  203.16
203.20...................................  203.17
203.21...................................  203.18
203.22...................................  203.19
203.23...................................  203.20
203.24...................................  203.21
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III. Regulatory Analyses

Administrative Procedures Act

    The public is invited to submit comments on the interim rule which 
will be taken into account before this interim rule is confirmed as 
final.
    This interim final rule does not substantively change the TT&L 
program but rather describes operational changes that have already 
taken place, updates terminology, and removes duplicative or 
unnecessary provisions. The updates in this rule will avoid confusion 
about the operation of the program. Under 5 U.S.C. 553(b), this rule is 
exempt from prior notice and comment rulemaking requirements on the 
grounds that the amendments are non-substantive and further delay in 
making these amendments is unnecessary and contrary to the public 
interest. For the same reasons, good cause exists to make the rule 
effective upon publication.

Request for Comment on Plain Language

    Executive Order 12866 requires each agency in the Executive branch 
to write regulations that are simple and easy to understand. We invite 
comment on how to make this final rule clearer. For example, you may 
wish to discuss: (1) Whether we have organized the material to suit 
your needs; (2) whether the requirements of this final rule are clear; 
or (3) whether there is something else we could do to make this rule 
easier to understand.

[[Page 59181]]

Regulatory Planning and Review

    The final rule does not meet the criteria for a ``significant 
regulatory action'' as defined in Executive Order 12866. Therefore, the 
regulatory review procedures contained therein do not apply.

Regulatory Flexibility Act Analysis

    Because no notice of proposed rulemaking is required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do 
not apply.

Paperwork Reduction Act

    This rule contains no new collections of information. Therefore, 
the Paperwork Reduction Act does not apply.

List of Subjects in 31 CFR Part 203

    Banks, Banking, Electronic funds transfers, Taxes.

Words of Issuance

0
For the reasons set out in the preamble, the Financial Management 
Service amends 31 CFR chapter II by revising part 203 to read as 
follows:

PART 203--PAYMENT OF FEDERAL TAXES AND THE TREASURY TAX AND LOAN 
PROGRAM

Subpart A--General Information
Sec.
203.1 Scope.
203.2 Definitions.
203.3 TT&L depositaries.
203.4 Financial institution eligibility for designation as a TT&L 
depositary.
203.5 Designation of financial institutions as TT&L depositaries.
203.6 Obligations of TT&L depositaries.
203.7 Termination of agreement or change of election or option.
203.8 Application of part and procedural instructions.
Subpart B--Electronic Federal Tax Payments
203.9 Scope of the subpart.
203.10 Electronic payment methods.
203.11 Same-day reporting and payment mechanisms.
203.12 EFTPS interest assessments.
203.13 Appeal and dispute resolution.
Subpart C--PATAX
203.14 Scope of the subpart.
203.15 Tax deposits using FTD coupons.
203.16 Retainer and investor depositaries.
203.17 Collector depositaries.
Subpart D--Investment Program and Collateral Security Requirements for 
TT&L Depositaries
203.18 Scope of the subpart.
203.19 Sources of balances.
203.20 Investment account requirements.
203.21 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 by financial 
institutions of electronic and paper-based deposits and payments of 
Federal taxes; the operation of the Treasury Tax and Loan (TT&L) 
program; the designation of TT&L depositaries; and the operation of the 
investment program. A financial institution may participate in the TT&L 
program by participating in the investment program or by accepting 
Federal tax payments, or both. A financial institution that accepts 
Federal tax payments may do so through the paper tax system (PATAX), or 
Electronic Federal Tax Payment System (EFTPS), or both. However, a 
financial institution is not designated as a TT&L depositary if it only 
processes EFTPS payments.


Sec.  203.2  Definitions.

    Advice of credit (AOC) means the paper or electronic form 
depositaries use to summarize and report Federal Tax Deposit (FTD) 
coupon deposits to the Internal Revenue Service (IRS) and the Federal 
Reserve Bank (FRB).
    Automated Clearing House (ACH) credit entry means a credit 
transaction originated by a financial institution, at the direction of 
the taxpayer, in accordance with applicable ACH formats and applicable 
laws, regulations, and procedural instructions.
    ACH debit entry means a debit transaction originated by the 
Treasury Financial Agent (TFA), at the direction of the taxpayer, in 
accordance with applicable ACH formats and applicable laws, 
regulations, and instructions.
    Balance limit means the highest amount a depositary has stated it 
will accept in its Treasury Investment Program (TIP) main account.
    Borrower-In-Custody (BIC) collateral means an arrangement by which 
a financial institution pledging collateral to secure special direct 
investments and certain term investments is permitted to retain 
possession of that collateral, subject to terms and conditions agreed 
upon between the FRB and the financial institution.
    Business day means any day on which a financial institution's FRB 
is open.
    Capacity means a TT&L depositary's ability to accept additional 
investments in its TIP main account balance and/or its Special Direct 
Investment (SDI) account balance. With respect to a TT&L depositary's 
TIP main account balance, capacity means the balance limit or current 
collateral value, whichever is lower, minus the total of: the 
depositary's current TIP main account balance and any pending 
investments, plus any pending withdrawals. With respect to an SDI 
account balance, capacity means the dollar amount of collateral that 
the depositary has pledged for SDIs under a BIC arrangement minus the 
total of: the depositary's current SDI account balance and any pending 
investments, plus any pending withdrawals.
    Collector depositary means a TT&L depositary that accepts paper tax 
payments from business customers and that may also process electronic 
tax payments from customers, but that does not retain any such deposits 
as investments or accept dynamic, direct, or special direct 
investments. A collector depositary may accept term investments.
    Direct investment means the Department of the Treasury's 
(Treasury's) placement of funds with a TT&L depositary, which results 
in an increase to the depositary's TIP main account balance and a 
credit to its reserve account.
    Dynamic investment means Treasury's placement of funds with a TT&L 
depositary throughout the day, which results in an increase to the 
depositary's TIP main account balance and a credit to its reserve 
account.
    Electronic Federal Tax Payment System (EFTPS) means the system 
through which taxpayers remit Federal tax payments electronically.
    Federal Reserve Bank (FRB) means the FRB of the district where the 
financial institution is located, or such other FRB that may be 
designated in an FRB operating circular, or such other FRB that may be 
designated by the Treasury. A financial institution is deemed located 
in the same district it would be deemed located for purposes of 
Regulation D (12 CFR 204.3(b)(2)), even if the financial institution is 
not otherwise subject to Regulation D.
    Federal Tax Deposit (FTD) means a Federal tax deposit made using an 
FTD coupon.
    FTD coupon means a paper form supplied to a taxpayer by Treasury to 
accompany deposits of Federal taxes made through PATAX.
    Federal taxes means those Federal taxes or other payments specified 
by the Secretary of the Treasury as eligible for payment through the 
procedures described in this part.
    Fedwire[reg]1 means the funds transfer system owned and operated by 
the FRBs.

[[Page 59182]]

    Fedwire[reg] 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[reg] value transfer means a Federal tax payment made by a 
financial institution using a Fedwire[reg] type 1000 message.
    Financial institution means any bank, savings bank, savings 
association, credit union, or similar institution.
    Fiscal agent means the FRB acting as agent for Treasury.
    Investment program is the all-inclusive name given to the programs 
by which Treasury invests excess operating cash.
    Investor depositary means a TT&L depositary that is authorized to 
participate in the investment program by accepting funds from Treasury 
via direct investments, special direct investments, dynamic 
investments, or term investments. In addition, an investor depositary 
may accept electronic or paper Federal tax payments from its business 
customers and retain a portion of those tax deposits, depending on the 
capacity of its TIP main account balance.
    Paper Tax System (PATAX) means the paper-based system through which 
taxpayers remit Federal tax payments by presenting an FTD coupon and 
payment to a TT&L depositary.
    Procedural instructions means the procedures contained in the 
Treasury Financial Manual, Volume IV (IV TFM), other Treasury 
instructions issued by Treasury or through Treasury's Financial Agents 
and FRB operating circulars, and agreements issued consistent with this 
part.
    Recognized insurance coverage means the insurance provided by the 
Federal Deposit Insurance Corporation, the National Credit Union 
Administration, and insurance organizations specifically qualified by 
the Secretary.
    Reserve account means an account at an FRB with reserve or clearing 
balances held by a financial institution or its designated 
correspondent financial institution, if applicable.
    Retainer depositary means a TT&L depositary that accepts electronic 
and/or paper Federal tax payments from its business customers and 
retains a portion of the Federal tax deposits in its TIP main account 
balance, depending on its balance limit, account balance, and 
collateral value. A retainer depositary may also accept term 
investments.
    Same-day payment means a payment made by a Fedwire[reg] non-value 
transaction or a Fedwire[reg] value transaction.
    Secretary means the Secretary of the Treasury, or the Secretary's 
delegate.
    Special Direct Investment (SDI) means the placement by Treasury of 
funds with an investor depositary secured by collateral pledged under a 
BIC arrangement.
    SDI account balance means an open-ended, interest-bearing note 
maintained on the books of the Treasury Support Center representing the 
amount of SDIs held by an investor depositary and secured by collateral 
pledged under a BIC arrangement.
    Tax due date means the day on which a Federal tax payment is due to 
Treasury, as determined by statute and IRS regulations.
    Term Investments means Treasury's excess operating funds that have 
been offered for a predetermined period of time and accepted by 
depositaries participating in the Term Investment Option.
    Term Investment Option (TIO) means the program available to 
depositaries that offers the ability to borrow excess Treasury 
operating funds for a predetermined period of time.
    TIO account balance means an interest-bearing note maintained on 
the books of the Treasury Support Center for a predetermined period of 
time.
    Treasury Financial Agent (TFA) means a financial institution 
designated as an agent of Treasury for processing EFTPS enrollments, 
consolidating EFTPS tax payment information, and originating ACH debit 
entries on behalf of Treasury as authorized by the taxpayer.
    Treasury General Account (TGA) means an account maintained in the 
name of the United States Treasury at an FRB.
    Treasury Investment Program (TIP) means the automated system under 
the TT&L program that receives tax collections, invests funds, and 
monitors collateral pledged to secure public money.
    TIP main account balance means an open-ended interest-bearing note 
maintained on the books of the Treasury Support Center (TSC) 
representing a retainer or investor depositary's current net amount of 
(i) Federal tax deposits retained by the depositary and/or (ii) 
Treasury investments made under the Direct investment program.
    Treasury Support Center (TSC) means the office at the FRB that, as 
Treasury's Fiscal agent, monitors collateral pledged to secure Treasury 
funds, manages TT&L program participation for depositaries, and/or 
carries on its books depositaries' TIP main account balances, SDI 
account balances, and/or Term Investment Option (TIO) account balances.
    Treasury Tax and Loan (TT&L) account means a record of transactions 
on the books of a TT&L depositary reflecting paper tax deposits 
received by the depositary.
    TT&L depositary or depositary means a financial institution 
designated as a depositary by Treasury or the FRB of St. Louis acting 
as Treasury's Fiscal agent, for the purpose of participating in the 
investment program and/or PATAX. There are three kinds of TT&L 
depositaries: investor depositaries, retainer depositaries, and 
collector depositaries.
    TT&L program means the program for collecting Federal taxes and 
investing the Government's excess operating funds.
    TT&L rate of interest means the interest charged on the TIP main 
account balance and the SDI account balance. The TT&L rate of interest 
is the rate prescribed by the Secretary taking into consideration 
prevailing market interest rates. The rate and any rate changes will be 
announced through a TT&L Special Notice to Depositaries and will be 
published in the Federal Register and on a Web site maintained by 
Treasury's Financial Management Service at http://www.fms.treas.gov.



Sec.  203.3   TT&L depositaries.

    A financial institution that participates in PATAX and/or the 
investment program must be a TT&L depositary. There are three kinds of 
TT&L depositaries. A collector depositary is a TT&L depositary that 
accepts paper Federal tax payments and also may accept electronic 
Federal tax payments, but does not accept direct investments or SDIs. A 
retainer depositary is a TT&L depositary that accepts electronic and/or 
paper Federal tax payments and retains a portion ofthe tax deposits in 
its TIP main account balance. An investor depositary is a TT&L 
depositary that accepts direct investments, SDIs, or dynamic 
investments and may accept electronic and/or paper Federal tax payments 
and retain a portion of those tax deposits. Collector, retainer, and 
investor depositaries may accept term investments. Retainer and 
investor depositaries do not have to participate in PATAX.


Sec.  203.4  Financial institution eligibility for designation as a 
TT&L depositary.

    (a) To be designated as a TT&L depositary, a financial institution 
must be insured as a national banking

[[Page 59183]]

association, state bank, savings bank, savings association, 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 must possess the authority to pledge 
collateral to secure TT&L account balances, a TIP main account balance, 
an SDI account balance, or a no account balance as applicable.
    (c) In order to be designated as a TT&L depositary for the purposes 
of processing Federal tax deposits through PATAX, a financial 
institution must 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. In addition, investor depositaries and retainer 
depositaries must possess either general or specific authority 
permitting the maintenance of a TIP main account 27 balance or an SDI 
account balance. Investor, retainer, and collector depositaries that 
accept term investments must possess either general or specific 
authority permitting the maintenance of a TIO account balance. In the 
case of investor and retainer depositaries maintaining a TIP main 
account balance or an SDI account balance, the authority must perm it 
the maintenance of a TIP main account balance or an SDI account balance 
which is payable on demand without previous notice of intended 
withdrawal.


Sec.  203.5  Designation of financial institutions as TT&L 
depositaries.

    (a) Parties to the agreement. To be designated as a TT&L 
depositary, a financial institution must enter into a depositary 
agreement with Treasury or Treasury's Fiscal agent. By entering into 
this agreement, the financial institution agrees to be bound by this 
part, and procedural instructions issued pursuant to this part. 
Treasury will not compensate depositaries for servicing and maintaining 
a TT&L account, or for processing tax payments through EFTPS or PATAX, 
unless otherwise provided for in procedural instructions.
    (b) Application procedures. (1) An eligible financial institution 
seeking designation as a TT&L depositary must file the forms specified 
in the procedural instructions with the TSC. A TT&L depositary must 
elect to be one or more of the following:
    (i) A collector depositary;
    (ii) a retainer depositary;
    (iii) an investor depositary.
    (2) A financial institution is not authorized to maintain a TT&L 
account, TIP main account balance, SDI account balance, or TIO account 
balance until the TSC designates it as a TT&L depository.


Sec.  203.6  Obligations of TT&L depositaries.

    A TT&L depositary must:
    (a) Administer a TIP main account balance, SDI account balance, or 
TIO account balance, as applicable, if participating in the investment 
program.
    (b) Administer a TT&L account, if participating in PATAX.
    (c) Comply with the requirements of Section 202 of Executive Order 
11246, entitled ``Equal Employment Opportunity'' (3 CFR, 1964-1965 
Comp., p. 339) as amended by Executive Orders 11375 and 12086 (3 CFR, 
1966-1970 Comp., p. 684; 3 CFR, 1978 Comp., p. 230), 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 Federal 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 (3 CFR 1971-1975 Comp., p. 752), and the 
regulations issued thereunder at 41 CFR parts 60-250 and 61-250, 
requiring Federal contractors to take affirmative action to employ and 
advance in employment qualified special disabled veterans and Vietnam-
era veterans.


Sec.  203.7  Termination of agreement or change of election or option.

    (a) Termination by Treasury. The Secretary may terminate the 
agreement of a TT&L 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 TT&L depositary may terminate its depositary agreement, or change its 
option or election, consistent with this part and the procedural 
instructions, by prior written notice to the TSC.


Sec.  203.8  Application of part and procedural instructions.

    The terms of this part and the procedural instructions issued 
pursuant to this part will be binding on financial institutions that 
process Federal tax payments or maintain a TT&L account, TIP main 
account balance, SDI account balance, or a TIO account balance under 
this part. By accepting or originating Federal tax payments, the 
financial institution agrees to be bound by this part and by procedural 
instructions issued pursuant to this part.

Subpart B--Electronic Federal Tax Payments


Sec.  203.9  Scope of the subpart.

    This subpart prescribes the rules that financial institutions must 
follow when they process electronic Federal tax payment transactions. A 
financial institution is not required to be designated as a TT&L 
depositary in order to process electronic Federal tax payments. In 
addition, a financial institution does not become a TT&L depositary by 
processing electronic Federal tax payments under this subpart and may 
not represent itself as a TT&L depositary because it does so.


Sec.  203.10  Electronic payment methods.

    (a) General. Electronic payment methods for Federal tax payments 
available under this subpart include ACH debit entries, ACH credit 
entries, and same-day payments.
    (b) Conditions to making an electronic payment. This part does not 
affect the authority of financial institutions to enter into contracts 
with their customers regarding the terms and conditions for processing 
payments, as long as the terms and conditions of those contracts are 
not inconsistent with this part and with any laws that apply to the 
particular transactions.
    (c) Payment of interest for time value of funds held. Treasury will 
not pay interest on any payment that a financial institution 
erroneously originates and that subsequently is refunded.


Sec.  203.11  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 the deadline established by Treasury in the procedural instructions.
    (b) Fedwire[reg] non-value transaction. By initiating a 
Fedwire[reg] non-value transaction, a financial institution authorizes 
the TSC to debit its reserve account for the amount of the Federal tax 
payment specified in the transaction.
    (1) For an investor or retainer depositary using a Fedwire[supreg] 
non-value transaction, the TSC will credit the Federal tax payment 
amount, up to the depositary's available TIP main account balance 
capacity, to the depositary's TIP main account balance on the day of 
the

[[Page 59184]]

transaction. Throughout the course of the day, the TSC will debit from 
the depositary's reserve account, and credit to the TGA, any portion of 
a tax payment amount that would exceed the institution's available TIP 
main account balance capacity.
    (2) For a collector depositary or a non-TT&L depositary financial 
institution using a Fedwire[supreg] non-value transaction, the TSC will 
debit the financial institution's reserve account for the Federal tax 
payment amount and credit that amount to the TGA on the day of the 
transaction.
    (c) Cancellations and reversals. In addition to cancellations due 
to insufficient funds in the financial institution's reserve account, 
the FRB may reverse a same-day transaction:
    (1) If the transaction:
    (i) Is originated by a financial institution after the deadline 
established by Treasury in the procedural instructions;
    (ii) Has an unenrolled taxpayer identification number; or
    (iii) Does not meet the edit and format requirements set forth in 
the procedural instructions; or
    (2) At the direction of the IRS, for the following reasons:
    (i) Incorrect taxpayer name;
    (ii) Overpayment; or
    (iii) Unidentified payment; or
    (3) At the request of the financial institution that sent the same-
day transaction, if the request is made prior to the payment day 
deadline established by Treasury in the procedural instructions.
    (d) Other than as stated in paragraph (c) of this section, Treasury 
is not obligated to reverse all or any part of a payment.


Sec.  203.12  EFTPS interest assessments.

    (a) Circumstances subject to interest assessments. Treasury may 
assess interest 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 Federal tax payment instructions to the financial 
institution was timely and that the taxpayer satisfied the conditions 
imposed by the financial institution pursuant to Sec.  203.10(b). 
Treasury also may assess interest where a financial institution fails 
to respond to an ACH prenotification entry on an ACH debit as required 
under part 210 of this title, or fails to originate an ACH 
prenotification or zero dollar entry on an ACH credit at a taxpayer's 
request, which then results in a late payment.
    (b) Calculation of interest assessment. Any interest assessed under 
this section will be at the TT&L rate of interest. Treasury will assess 
the interest from the day the taxpayer specified that its payment 
should settle to the Treasury until the day Treasury receives the 
payment, subject to the following limitations: for ACH debit 
transactions, interest will be limited to no more than seven calendar 
days; For ACH credit and same-day transactions, interest will be 
limited to no more than 45 calendar days. The limitation of liability 
in this paragraph does not apply to any interest assessment in which 
there is an indication of fraud, the presentation of a false claim, or 
misrepresentation or embezzlement on the part of the financial 
institution or any employee or agent of the financial institution.
    (c) Authorization to assess interest. A financial institution that 
processes Federal tax payments made electronically under this subpart 
is deemed to authorize the TSC to debit its reserve account for any 
interest assessed under this section. Upon the direction of Treasury, 
the TSC will debit the financial institution's reserve account for the 
amount of the assessed interest.
    (d) Circumstances not resulting in the assessment of interest.
    (1) Treasury will not assess interest 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.  203.10(b) and the financial institution 
has not contributed to the delay. The burden is on the financial 
institution to establish, pursuant to the procedures in Sec.  203.13, 
that the taxpayer has not satisfied the conditions and that the 
financial institution has not caused or contributed to the delay.
    (2) Treasury will not assess interest on a financial institution if 
a taxpayer fails to meet a tax due date because the FRB or the TFA 
caused a delay and the financial institution did not contribute to the 
delay. The burden is on the financial institution to establish, 
pursuant to the procedures in Sec.  203.13, that it did not cause or 
contribute to the delay.


203.13  Appeal and dispute resolution.

    (a) Contest. A financial institution may contest any interest 
assessed under Sec.  203.12 or any late fees assessed under Sec.  
203.17. To do so, the financial institution must submit information 
supporting its position and the relief sought. The information must be 
received, in writing, by the Treasury officer or Fiscal agent 
identified in the procedural instructions, no later than 90 calendar 
days after the date the TSC debits the Federal reserve account of the 
financial institution under Sec.  203.12 or Sec.  203.17. The Treasury 
officer or Fiscal agent will make a decision to: Uphold, reverse, or 
modify the assessment, or mandate other action.
    (b) Appeal. The financial institution may appeal the decision 
referenced in subsection (a) to Treasury as set forth in the procedural 
instructions. No further administrative review of Treasury's decision 
is available under this part.
    (c) Recoveries. In the event of an over or under recovery of 
interest, principal, or late fees, Treasury will instruct the TSC to 
credit or debit the financial institution's reserve account.

Subpart C--PATAX


Sec.  203.14  Scope of the subpart.

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


Sec.  203.15  Tax deposits using FTD coupons.

    A TT&L depositary processing FTD coupons may choose to be 
designated as a retainer depositary, an investor depositary, or a 
collector depositary. A TT&L depositary that accepts FTD coupons 
through any of its offices that accept demand and/or savings deposits 
must:
    (a) Accept from a taxpayer that presents an FTD coupon: 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. A TT&L 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.
    (b) Place a stamp impression on the face of each FTD coupon in the 
space provided. The stamp must reflect the date on which the TT&L 
depositary received the tax deposit and the name and location of the 
depositary. The IRS will determine whether the tax payment is on time 
by referring to the date stamped on the FTD coupon.
    (c) Forward, each day, to the IRS Service Center serving the 
geographical area in which the TT&L depositary is located, the FTD 
coupons for all FTD deposits received that day and a copy of the AOC 
reflecting the total amount of all FTD coupons.
    (d) Establish an adequate record of all FTD deposits prior to 
transmitting them to 36 the IRS Service Center so that the TT&L 
depositary will be able to identify deposits in the event the FTD 
coupons are lost in shipment. To be adequate, the record must show, at 
a minimum for each deposit, the date of the deposit, the

[[Page 59185]]

taxpayer identification number, the amount of the deposit, the tax 
period ending date, the type of tax deposited, and the employer name. 
Alternatively, the TT&L depositary may retain a copy of each FTD coupon 
forwarded to the IRS Service Center.
    (e) On the business day following receipt of an FTD coupon, submit 
the AOC information electronically to the TSC.
    (f) Not accept compensation from taxpayers for accepting FTDs and 
handling them as required by this section.


Sec.  203.16  Retainer and investor depositaries.

    (a) Credit to TIP main account balance. On the business day that 
the TSC receives an AOC from a retainer or investor depositary, the TSC 
will credit the depositary's TIP main account balance for the amount 
reported on the AOC unless there isn't sufficient capacity. In that 
case, any amount in excess of the capacity will be debited to the 
reserve account and credited to the TGA.
    (b) Late delivery of AOC. If an AOC does not arrive at the TSC 
before the designated cutoff time for receipt, the TSC will credit the 
amount of funds to the depositary's TIP main account balance as of the 
date of receipt of the AOC. However, the date on which funds will begin 
to earn interest for Treasury is the next business day after the AOC 
date.


Sec.  203.17  Collector depositaries.

    (a) Debit to reserve account. On the business day that the TSC 
receives an AOC from a collector depositary, the TSC will debit the 
depositary's reserve account for the amount reported on the AOC and 
credit that amount to Treasury's account.
    (b) Late delivery of AOC. If an AOC does not arrive at the TSC 
before the designated cutoff time on the first business day after the 
AOC date, an FTD late fee in the form of interest at the TT&L rate of 
interest will.be assessed for each day's delay in receipt of the AOC. 
Upon the direction of Treasury, the TSC will debit the depositary's 
reserve account for the amount of the late fee.

Subpart D--Investment Program and Collateral Security Requirements 
for TT&L Depositaries


Sec.  203.18  Scope of the subpart.

    This subpart governs the operation of the investment program, 
including the rules that TT&L depositaries must follow in crediting and 
debiting TIP main account balances, SDI account balances, and TIO 
account balances, and pledging collateral security.


Sec.  203.19  Sources of balances.

    A financial institution must be a collector depositary that accepts 
term investments, an investor depositary, or a retainer depositary to 
participate in the investment program. Depositaries electing to 
participate in the investment program can receive Treasury's 
investments in obligations of the depositary from the following 
sources:
    (a) FTDs that have been credited to the depositary's TIP main 
account balance pursuant to subpart C of this part;
    (b) EFTPS ACH credit and debit transactions, Fedwire[reg] non-value 
transactions, and Fedwire[reg] value transfers pursuant to subpart B of 
this part;
    (c) Direct investments, SDIs, dynamic investments, and term 
investments pursuant to subpart D of this part; and
    (d) Other excess Treasury operating funds.


Sec.  203.20   Investment account requirements.

    (a) Additions. Treasury will invest funds in obligations of 
collector depositaries that accept term investments, investor 
depositaries, or retainer depositaries. Such obligations will be in the 
form of open-ended interest-bearing notes, or in the case of term 
investments, interest-bearing notes maintained for a predetermined 
period of time, and additions and reductions will be reflected on the 
books of the TSC.
    (1) PATAX. The TSC will credit the TIP main account balance as 
stated in Sec.  203.16(a) for an investor or retainer depositary 
processing tax deposits through PATAX.
    (2) EFTPS.
    (i) ACH debit and ACH credit. The TSC will credit a depositary's 
TIP main account balance, and credit the depositary's reserve account 
if capacity exists, for the amount of EFTPS ACH debit and credit 
entries on the day such entries settle.
    (ii) Fedwire\[reg]\ value and non-value transactions. The TSC will 
credit a depositary's TIP main account balance if capacity exists, 
throughout the day on the day of settlement, for the amount of 
Fedwire\[reg]\ value and non-value transactions. In the case of 
Fedwire[reg] value transactions, the depositary's reserve account will 
also be credited.
    (b) Additional offerings. Other funds from Treasury may be offered 
from time to time to depositaries participating in the investment 
program through direct investments, SDIs, term investments, or other 
investment programs.
    (c) Withdrawals. The amount of a TIP main account balance or SDI 
account balance is payable on demand without prior notice. The TSC will 
make calls for payment at the direction of the Secretary. On behalf of 
Treasury, the TSC will debit the depositary's reserve account on the 
day specified in the call for payment.
    (d) Interest. The TIP main account balance and the SDI account 
balance bear interest at the TT&L rate of interest. Such interest is 
payable by a charge to the depositary's reserve account in the manner 
prescribed in the procedural instructions.
    (e) Balance limits.
    (1) Retainer and investor depositaries. A retainer or investor 
depositary must establish an initial balance limit for its TIP main 
account balance by providing notice to that effect in writing to the 
TSC. The balance limit is the amount of funds for which a retainer or 
investor depositary is willing to provide collateral in accordance with 
Sec.  203.21(c)(1). The depositary must follow the procedural 
instructions before reducing the established balance limit unless the 
reduction results from a collateral revaluation as determined by the 
FRB. That portion of any PATAX or EFTPS tax payment which, when posted 
at the FRB, would cause the TIP main account balance to exceed the 
balance limit specified by the depositary, will be withdrawn by the FRB 
that day.
    (2) Direct investments. An investor depositary that participates in 
direct investments must set a balance limit for direct investment 
purposes which is higher than the peak balance normally generated by 
the depositary's PATAX and EFTPS tax payment inflow. The depositary 
must follow the procedural instructions before reducing the established 
balance limit.
    (3) SDIs. SDIs are credited to the SDI account balance and are not 
considered in setting the amount of the TIP main account balance limit 
or in determining the amounts to be withdrawn where a depositary 
exceeds its TIP main account balance limit.
    (f) TIO. Treasury may, from time to time, invest excess operating 
funds in obligations of depositaries awarded funds under TIO. Such 
obligations will be in the form of interest-bearing notes payable upon 
a predetermined period of time not to exceed 90 days. Such notes will 
bear interest at a rate prescribed by the Secretary by auction or 
otherwise taking into consideration prevailing market interest rates.

[[Page 59186]]

Sec.  203.21   Collateral security requirements.

    Financial institutions that process EFTPS tax payments, but that 
are not TT&L depositaries, have no collateral requirements under this 
part. Financial institutions that are TT&L depositaries have collateral 
security requirements, as follows:
    (a) Investor and retainer depositaries.
    (1) PATAX and EFTPS tax payments. Investor and retainer 
depositaries must pledge collateral security in accordance with the 
requirements of paragraphs (c)(l), (d), and (e) of this section in an 
amount that is sufficient to cover the TIP main account balance and the 
balance in the TT&L account that exceeds the recognized insurance 
coverage.
    (2) Direct investments. An investor depositary is required to 
pledge collateral in accordance with the requirements of paragraphs 
(c), (d), and (e) of this section no later than the day before a direct 
investment is placed. However, each investor depositary participating 
in same-day direct investments must pledge, prior to the announcement, 
collateral up to its balance limit to obtain the depositary's maximum 
portion of the same-day direct investment.
    (3) SDIs. The day before SDIs are credited to an investor 
depositary's SDI account balance, the depositary must pledge collateral 
security, in accordance with the requirements of paragraphs (c)(2), 
(d), and (e) of this section, to cover the total of the SDIs to be 
received.
    (4) TIO. Each depositary participating in the term investment 
program must pledge, prior to the time the term investment is placed, 
collateral in accordance with paragraphs (c)(1), (c)(2) for certain 
term investments as determined by Treasury, (d), and (e) of this 
section sufficient to cover the total TIO account balance.
    (b) Collector depositaries. Prior to crediting FTD deposits to the 
TT&L account, a collector depositary must pledge collateral security, 
in accordance with the requirements of paragraphs (c)(1), (d), and (e) 
of this section, in an amount which is sufficient to cover the balance 
in the TT&L account that exceeds the recognized insurance coverage.
    (c) Deposits of securities. (1) Collateral security required under 
paragraphs (a)(1), (2), (4) (except as provided in subparagraph (2) 
below), and (b) of this section must be deposited with the depositary's 
FRB, or with a custodian or custodians within the United States 
designated by the TSC or FRB, under terms and conditions prescribed by 
the TSC or FRB.
    (2) A depositary pledging collateral security as required under 
paragraph (a)(3) or paragraph (a)(4) (when permitted) of this section 
must pledge the collateral under a written security agreement on a form 
provided by the FRB. The collateral security pledged to satisfy the 
requirements of paragraphs (a)(3) and (a)( 4) (when permitted) of this 
section may remain in the pledging depositary's possession provided 
that the pledging is evidenced by advices of custody incorporated by 
reference in the written security agreement. The depositary must 
provide the written security agreement and all advices of custody 
covering collateral security pledged under that agreement to the FRB. 
Collateral security pledged under the agreement may not be substituted 
for or released without the advance approval of the FRB, and any 
collateral security subject to the security agreement will remain so 
subject until an approved substitution is made. No substitution or 
release will be approved until an advice of custody containing the 
description required by the written security agreement is received by 
the FRB.
    (3) Treasury's security interest in collateral security pledged by 
a depositary in accordance with paragraphs (c)(2) of this section to 
secure SDIs and certain term investments is perfected without Treasury 
taking possession of the collateral security by filing or, absent 
filing, for a period not to exceed 20 calendar days from the day of the 
depositary's receipt of the special direct or term investment.
    (d) Acceptable collateral. The types of securities that may be used 
as collateral, and how those securities are valued, are set forth in 31 
CFR part 380.
    ( e) Assignment of securities. By pledging acceptable securities 
which are not negotiable without the depositary's endorsement or 
assignment, a TT&L depositary, in lieu of placing its unqualified 
endorsement on each security, appoints the FRB or its assigns as the 
depositary's attorney-in-fact with full irrevocable power and authority 
to endorse, assign or transfer the securities, and represents and 
warrants that an appropriate resolution authorizing the granting of 
such irrevocable power of attorney has been executed and adopted. The 
powers of attorney so granted are coupled with an interest and are 
irrevocable, and full power of substitution is granted to the assignee 
or holder.
    (f) Effecting payments of principal and interest on securities or 
instruments pledged as collateral. (1) General. Treasury, without 
notice or demand, may sell or otherwise collect the proceeds of all or 
part of the collateral, including additions, substitutions, interest, 
and distribution of principal, and apply the proceeds to satisfy any 
claims of the United States against the depositary, if any of the 
following events occur:
    (i) 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, if 
applicable, its TIP main account balance, SDI account balance, or TIO 
account balance;
    (ii) The depositary fails to pay when due amounts owed to the 
United States or the United States Treasury;
    (iii) The depositary otherwise violates or fails to perform any of 
the terms of this part or any of the procedural instructions entered 
into hereunder; or
    (iv) The depositary is closed for business by regulatory action or 
by proper corporate action, or a receiver, conservator, liquidator, or 
any other officer is appointed for the depositary. All principal and 
interest payments on any security pledged to protect the TIP main 
account balance, the SDI account balance, the TIO account balance or 
the TT&L account, as applicable, due as of the date of the insolvency 
or closure or thereafter becoming due, will be held separate and apart 
from any other assets and will 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) will, as soon as possible, 
remit to the FRB, as Fiscal agent, each payment of principal and/or 
interest received by it with respect to collateral pledged pursuant to 
this section. The remittance will be made 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, upon notification that Treasury is entitled to any 
payment associated with that pledged security, must make each payment 
of principal and/or interest due with respect to such security directly 
to the FRB, 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.  203.7 and also 
those circumstances identified in paragraph (f)(1) which may lead to 
the collection of the proceeds of collateral

[[Page 59187]]

or the waiver is otherwise terminated by Treasury.

    Dated: October 11, 2007.
Kenneth R. Papaj,
Commissioner.
[FR Doc. 07-5135 Filed 10-18-07; 8:45 am]
BILLING CODE 4810-35-M