Prop. Regs. Would Eliminate Paper Coupons for Federal Tax Deposits

By Howard A. Levenson, CPA, J.D., L.L.M., Washington, DC

Editor: Michael Dell, CPA


Procedure & Administration

The IRS has issued proposed regulations (REG 153340-09) that, effective in 2011, would eliminate the option of making federal tax deposits by paper coupon. Going forward, taxpayers must submit all federal tax deposits using the Electronic Federal Tax Payment System (EFTPS).

Under the current regulations, organizations whose aggregate annual federal tax deposits exceed $200,000 generally must use the EFTPS. Organizations not required to use the EFTPS may present a check and a paper federal deposit coupon to a bank teller at one of approximately 8,000 financial institutions authorized as a government depositary or to a financial agent. However, beginning in 2011, Financial Management Services, a bureau of the Department of Treasury, is eliminating the system that enables the processing of federal deposit coupons.

The proposed regulations do not change the existing rules for determining a depositor’s status as a monthly or semiweekly depositor for employment taxes. Nor do the proposed regulations change existing rules regarding whether organizations can remit taxes with a return in lieu of making a federal tax deposit if their liability falls below a particular threshold (e.g., $2,500 for a return period for employment taxes). However, such organizations may voluntarily make deposits by EFTPS.

According to the IRS, taxpayer use of the EFTPS has substantial benefits. EFTPS users can make tax payments 24 hours a day, 365 days a year, online or by telephone. Taxpayers can schedule payments up to 120 days in advance using the EFTPS, and the system significantly reduces payment-related errors that could result in a penalty.

Implications

The proposed IRS regulations will affect employers that currently use the paper coupon deposit system for some or all of their federal tax deposits. Taxpayers will be required to make federal tax deposits related to the following taxes, among others, using the EFTPS:

  • Corporate income and corporate estimated taxes;
  • Unrelated business taxes under Sec. 511;
  • Private foundation excise taxes under Sec. 4940;
  • Taxes withheld on nonresident aliens and foreign corporations;
  • Estimated taxes on certain trusts;
  • FICA taxes and withheld income taxes; and
  • Nonpayroll taxes, including backup withholding.

Organizations that currently make federal tax deposits using paper coupons will need to register to remit their tax payments using the EFTPS. For more information related to the new system, please see the following resources:

  • IRS Publication 4132, EFTPS Online Factsheet (2007), which explains the process of enrolling and paying via the internet.
  • IRS Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals (2008).
  • IRS Publication 4169, Tax Professional Guide to the Electronic Federal Tax Payment System (2007).
  • IRS Publication 4320, EFTPS Tool Kit (2007), which contains descriptions of EFTPS educational materials (most of which can be downloaded as PDF files) and their intended target audiences and is designed for use by tax professionals and financial institutions to help educate their clients about the benefits of EFTPS.
  • Publication 4275, EFTPS Express Enrollment for New Businesses (2007).
  • Electronic Payment Options Home Page.

EditorNotes

Michael Dell is a partner at Ernst & Young LLP in Washington, DC.

For additional information about these items, contact Mr. Dell at 202-327-8788 or michael.dell@ey.com.

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