Guidance on required electronic FTDs.

AuthorGoldberg, Walter S.
PositionFederal tax deposits

Sec. 6302(h) requires that certain taxes be deposited by means of electronic funds transfers (EFTS). Proposed and temporary regulations that implement this section are significant, as they mandate a change in the way most business taxpayers will deposit taxes. The IRS has also issued Rev. Proc. 94-48, which provides necessary guidance on EFT payment options. Although the rules for depositing taxes by way of EFTS will be phased in over a number of years (approximately 800 large employers will be required to use EFTS beginning Jan. 1, 1995), it is not too early for other taxpayers to prepare for this requirement.

Background

Under the current Federal tax system, taxpayers are required to deposit certain taxes (i.e., FICA, withheld income taxes, corporate income and estimated taxes, excise taxes and Railroad Retirement Tax Act taxes) with an authorized financial institution (depository). These depository taxes must be deposited by specified dates using a Form 8109, Federal Tax Deposit Coupon. The depository then forwards the coupon to an IRS service center, which reconciles the coupon information with the liability shown by the taxpayer on the applicable return.

In 1993, as part of the tax systems modernization initiative, the IRS introduced a test program called TAXLINK that allowed business taxpayers to make Federal tax deposits (FTDS) using EFT technology. At the time it was introduced, participation in TAXLINK was strictly voluntary. However, shortly after its introduction, as part of the North American Free Trade Agreement, Congress enacted Sec. 6302(h), which required the Service to phase in an EFT payment system for the collection of Federal depository taxes.

Temporary regulations

The proposed and temporary regulations implement a phase-in of effective dates for taxpayers to use EFTS to deposit taxes. For periods after Dec. 31, 1994, a taxpayer would be required to begin EFTS when its aggregate deposits of depository taxes during a "determination period" exceed a threshold amount. See the table, above, for the threshold amounts, determination periods and applicable effective dates.

Rev. Proc. 94-48

Rev. Proc. 94-48 specifies the depository taxes subject to the EFT requirement and provides guidance to both financial institutions and taxpayers. Only taxes reported on the following forms are subject to TAXLINK:

* Form 720, Quarterly Federal Excise Tax Return.

* Form 940, Employer's Annual Federal Unemployment Tax Return.

* Form 941...

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