A link to the IRS.

Taxlink, the Internal Revenue Service program for collecting federal depository taxes electronically, is replacing the coupon (paper) system employers now use to make such deposits. In operation since December 1993, Taxlink allows employment, excise and corporate income taxes to be paid by electronic funds transfer (EFT). There are nearly 25,000 participants, including 800 mandated taxpayers. Neiland Cohen, a tax consultant and enrolled agent in Milwaukee, explains how the new system works.

Under the terms of the North American Free Trade Agreement, the IRS was mandated to create a new EFT system so funds from a taxpayer's bank account could be transferred electronically to the U.S. Treasury's general account. The IRS developed Taxlink to meet this mandate. The current coupon system will be phased out through fiscal year 1999.

Taxlink is similar to the EFT system already used for payroll checks, Social Security and veterans benefits and automatic loan payments. The IRS is using the same Automated Clearing House (ACH) network.

Internal Revenue Code section 6302(h) has been revised to provide for a mandatory electronic federal tax payment system. Temporary regulations section 31.6302-1T(h) includes EFT deposit requirements. Details on how the IRS will accept and process EFT payments are explained in revenue procedure 94-48. Instructions on how to abate the penalty for failing to make a timely deposit are discussed in revenue ruling 94-46.

The paper filing system requires taxpayers to fill out a federal depository taxes coupon (form 8109), write a check and take the paperwork to the bank. Taxlink eliminates trips to the bank, standing in line and the need to write checks and fill out coupons. Tax returns still must be filed on time.

WHO MUST PARTICIPATE?

The regulations require taxpayers meeting certain thresholds to begin paying federal depository taxes electronically by a certain date. The threshold amounts shown in the exhibit on page 36 are for employment taxes but trigger a requirement to pay all federal depository taxes electronically.

Taxpayers can participate in Taxlink voluntarily before they are required to do so. This will help entities evaluate the new system's impact on their businesses and make any necessary adjustments. Early volunteers can revert to coupon payments, if necessary, until that date. Once a taxpayer is required to pay electronically, however, it cannot revert to coupons even if its deposits drop below the threshold amount.

HOW IT WORKS

EFT is accomplished either by telephone or by computer. Taxpayers can choose one of two payment options: ACH debit or ACH credit. Both methods require payments to be made one day before the tax payment due date.

ACH debit. This option offers different reporting methods all through 800 telephone lines at the IRS financial agents. These agents initiate the debit after the taxpayer reports; funds are debited the following day.

* Voice response system. Callers answer a sequence of recorded questions by pressing the appropriate numbers on a Touch-Tone telephone. After each transaction a reference number is assigned for verification purposes. Multiple reports can be made in one call.

* Personal computer method. Taxpayers use a specialized, user-friendly program provided by the IRS at no cost. A reference or verification number also is provided, and multiple reports can be made. Taxpayers need IBM-compatible equipment, 640 kilobytes of RAM or system memory, a hard drive, DOS 3.3 or higher and access to an outside analog phone line.

* Voice operator. Taxpayers can speak directly to an operator at the IRS financial agents to report tax payments. A Touch-Tone phone is not necessary. A reference number is provided, and multiple reports can be made.

* Point-of-sale equipment. The IRS will provide instructions for programming point-of-sale equipment - similar to that used in gas stations and some retail stores - to report tax payments. The IRS also can provide a list of approved equipment. An outside analog line is necessary. A reference number is provided, and multiple reports can be made.

ACH credit. Taxpayers can make arrangements with their own financial institutions, provide them with the tax payment data and instruct them to initiate an ACH credit to the IRS.

HOW TO ENROLL

Taxlink is expected to allow faster and more accurate posting of payments. The IRS encourages all taxpayers to enroll early. Enrollment forms can be obtained by writing to: IRS Atlanta Service Center, Cash Management Site Office - Stop 295, P.O. Box 47669, Doraville, Georgia 30362. Additional information can be obtained by calling [phone].

Electronic payment thresholds

Amount deposited     Calendar year      Begin electronic payments
$78 million          1993               January 1, 1 995
$47 million          1993 or 1994(*)    January 1, 1996
$50 thousand         1995               January 1, 1997
$50 thousand         1996               January 1, 1 998
$20 thousand         1997               January 1, 1999

(*) Taxpayers who reached the $47 million threshold in either 1993 or 1994 are
required to begin electronic payments by January 1, 1996.

EXECUTIVE SUMMARY

* TAXLINK IS AN INTERNAL Revenue Service program for collecting federal depository taxes - employment, excise and corporate income - electronically. It will replace the current paper system now in use. * ONCE DEPOSITS MEET SET thresholds, taxpayers must pay federal depository taxes electronically by a certain date. Voluntary participation also is encouraged. * TAXPAYERS ELECTING A debit option to make deposits contact an IRS financial agent using one of four-voice- or computer-activated methods. The agent will debit the appropriate amount from the taxpayer's account the next day. * TAXPAYERS ELECTING A credit option contact their own financial institution, which credits the IRS with the appropriate amount.