EFTPS is here.

• Author: Pflieger, Deborah J.
• Position: Electronic Federal Tax Payment System

The Electronic Federal Tax Payment System (EFTPS) represents a dramatically different way for most businesses to make their Federal tax deposits. The IRS has begun to send to those depositors who have completed Form 9779, EFTPS Business Enrollment Form, a confirmation package consisting of an enrollment letter, an enrollment confirmation/update form and a payment instruction booklet. In a separate mailing, these depositors should have received a personal identification number assignment. As soon as a business receives those materials, it can begin making electronic deposits. (See Tax Practice & Procedures, "Electronic Tax Payment. Coming Soon to a Taxpayer Near You," TTA, July 1996, p. 440, and "Update: The Electronic Federal Tax System," TTA, Oct. 1996, p. 635, for more information on EFTPS.)

Background

Depositors of more than $50,000 of payroll taxes in 1995 are required to start making all of their tax deposits electronically in 1997. Originally, these deposits were to begin on January 1; however, late July 1996, the Service announced that penalties for failure by mandate depositors to use the system will not be imposed until July 1, 1997. In addition, Congress extended the statutory time frame (from Jan. 1, 1977 to July 1, 1997) by which the IRS was required to implement the 1997 phase of the electronic funds transfer system.

Penalties for Failure to Deposit

Electronically

Penalties for failure to make electronic deposits can be extreme. It is the Service's position that businesses required to use EFTPS, but which instead make deposits with a Federal tax deposit coupon at an authorized depository, will be subject to a 10% late payment penalty because the deposit will not have been made "in the manner required" by the Code. Deposits made in the proper manner, but late, will be subject to the sliding scale penalty of Sec. 6656: 2% for five days or fewer, 5% if more than five but not more than 15 days late; and 10% if the delay is more than 15 days but before the IRS issues a delinquency notice with respect to the tax.

Method of Payment

EFTPS payments can be made by ACH debit or ACH credit. Both of these types of transactions must be initiated no later than the day before the due date of the payments. Recently, proposed regulations issued by the Treasury Department also offer three "same-day" settlement methods. These methods - Fedwire value, Fedwire non-value and Direct Access - can be used to make a tax payment on the day it...