Update: the electronic federal tax payment system.

Recent actions by Congress and the IRS have delayed the mandatory use of the IRS's new electronic funds transfer system known as EFTPS (electronic Federal tax payment system). The IRS has sent letters and enrollment forms to the 1.3 million businesses originally required to begin making tax deposits electronically on Jan. 1, 1997, notifying them of the requirement and requesting that they enroll in the program by mid-October. However, as a result of pressure from Congress, as well as from many small business organizations attempting to ensure that these depositors understand the new deposit system, the Service has now announced that penalties for failure to use the system will not be imposed until July 1, 1997. In addition, in the Small Business Job Protection Act, Congress has extended the statutory time frame (from Jan. 1, 1997 to July 1, 1997) by which the IRS must implement the next phase of the electronic funds transfer system. Despite these delays, businesses should still be encouraged to enroll in EFTPS and begin making their tax payments electronically as soon as possible. (See Tax Practice & Procedures,"Electronic Tax Payment: Coming Soon to a Taxpayer Near You," TTA, July 1996, p. 440, for more information on EFTPS.)

Depositors of more than X50,000 of payroll taxes in 1995 are required to start making all of their tax deposits electronically in 1997. These businesses must submit Form 9770 to enroll in EFTPS. This enrollment process may take up to 10 weeks to complete, and must be finalized before electronic deposits can be made. Form 9770 requests specific taxpayer information (name, address, employer identification number, contact person); the depositor's intended method of remittance (ACH Debit or ACH Credit; depositors can register to use both methods); for ACH Debit depositors, payment input method (personal computer and modem; telephone; TDD/TTY; mainframe; or point of sale); the types of tax payments to be made and their approximate amounts; and financial institution information (to be signed by a representative of the depositor's financial institution).

The factors to be considered in determining whether to make deposits via ACH Debit or ACH Credit should include timing (both types of payments must be initiated no later than the day before they are due: ACH Debit payments must be initiated before 8 p.m. E.S.T. to settle the next business day, while ACH Credit payment deadlines are determined by the bank that initiates payment); costs (determined by the business's own bank); and liability (as soon as an ACH Debit payment is initiated, the Treasury Financial Agent is responsible for its processing; a depositor is responsible for an ACH Credit payment until it is credited to the Treasury's account).

The phase-in schedule for the use of EFTPS is as follows:

For taxpayers with no payroll tax deposits, all other tax deposits are phased in as follow:

Payroll tax deposits Determination EFTPS (in excess of) year requirement $79,000,000 1993 1/1/95 47,000,000 1993 or 1994 1/1/96 50,000 1995 7/1/97 50,000 1996 1/1/98 20,000 1997 1/1/99

All non-payroll tax deposits Determination EFTPS (in excess of) year requirement

$550,000 1995 or 1996 1/1/98

20,000 1997 1/1/99

FROM DEBORAH J. PFEEGER, J.D., LL.M., COOPERS & LYBRAND L.L.P, WASHINGTON, D.C.

Editor's note: Mr. Ely chairs the AICPA Tax Division Tax Practice and Procedures Committee. Dr. O'Neil, Ms. Pflieger and Ms Everidge are members of the committee.