TREASURY TAX AND LOAN

SPECIAL NOTICE TO DEPOSITARIES

Updated August 5, 1999

The Department of the Treasury (Treasury) has revised Volume IV of the Treasury Financial Manual (IV TFM.). IV TFM, last up-dated in 1992, provides financial institutions and depositaries instructions for processing tax deposits using the paper-based Federal Tax Deposit (FTD) system and for the Electronic Federal Tax Payment System (EFTPS). It also contains extensive re-formatting.

The following paragraphs highlight some common errors made by financial institutions and depositaries when processing tax deposits and payments in the EFTPS system. The Treasury requires that all financial institutions and depositaries follow Title 31 Code of Federal Regulations 203 (31 CFR 203) and the procedural instructions contained in IV TFM when processing Federal taxes for their customers. Treasury strives to ensure that there is integrity in these systems, that these systems are as error-free as possible and that all financial institutions and depositaries are treated equally. However, when errors are committed by financial institutions or depositaries, Treasury must monetarily penalize the financial institutions and depositaries for improper processing of FTD coupons and EFTPS deposits and payments. Treasury is providing the following highlights to assist in providing clear instructions to continue a smooth running and relatively penalty-free system.

The FRB identifies and corrects most errors made by depositaries in the paper-based FTD system without the taxpayer becoming aware of the error. These errors incur the following charges against the depositary: stale-dated (IV TFM 1-2135.30), un-dated (IV TFM 1-2135.50) and late (IV TFM 1-2140) charges.

The taxpayer is the first to identify most EFTPS errors made by financial institutions and depositaries after the Internal Revenue Service (IRS) notifies the taxpayer a deposit is late. This may result in the financial institutions and depositaries having customer service problems. Since implementation of EFTPS in late 1996, Treasury has identified some common errors made by financial institutions and depositaries that can lead to penalties by the Treasury. Financial institutions and depositaries may want to implement the following suggestions.

• Improving the customer's knowledge of the FI's EFTPS procedures.

  Treasury encourages financial institutions and depositaries to provide their customers with written guidelines consistent with established procedures and timetables for initiating EFTPS deposits. This includes any financial institution or depositary initiated requirement for pre-funding an account or requiring additional customer authorization. (See IV TFM 1-2235.20)

• Responding to an ACH prenotification (ACH debit).

  Treasury may impose a charge against a financial institution or depositary if a tax payment is late because the financial institution or depositary failed to respond to a prenotification entry that contained incorrect information. (See IV TFM 1-2230.30.)

• Initiating Same-day deposits before 2:00 pm Managing Reserve Bank Head Office Local Zone Time (MRB Head Office LZT).
  
  A financial institution or depositary must send same-day Federal tax payments so that the FRB receives them by 2 pm MRB Head Office LZT). The FRB returns deposits received after 2 pm MRB Head Office LZT. It may assess interest against a financial institution or depositary if the financial institution or depositary initiated a deposit (which was subsequently returned) after 2 pm MRB Head Office LZT AND the taxpayer met the financial institution's or depositary's requirements as to timely notification. (See IV TFM 1-2245.10)

• Verifying the accuracy of the taxpayer's enrollment form.

  A financial institution or depositary verifies the accuracy of its routing transit number and the taxpayer's account number and account type. The Treasury may assess a charge against a financial institution or depositary if a payment is late because the financial institution or depositary provided an incorrect account number on the enrollment form. This error could occur because the taxpayer provided, but the financial institution or depositary did not verify and correct, the number for an old, and subsequently closed, account or an invalid account number on the enrollment form. (See IV TFM 1-2230.20).

Also, financial institutions and depositaries should be aware that some EFTPS deposit operations may adversely affect their customers. To ensure smooth EFTPS processing:

• Select the correct Financial Agent.

  Do not assume that all taxpayers are assigned to the same financial agent. The financial institution or depositary must obtain the correct routing and transit number and account number from each taxpayer.

• Identify EFTPS deposits on customer's statements.

  If a taxpayer contests a late tax payment, IRS requires that the taxpayer prove a timely deposit. It may require a bank statement showing the tax deposit. Financial institutions and depositaries are encouraged to identify Federal tax payments on customers statements to assist in identifying tax deposits. Financial institutions and depositaries should use the term, "USATAXPYMT" to identify tax deposits. (See IV TFM 1-2240.10 and 1-2240.20 (4))

• Notify customers of returns or cancellations

  ACH Debit: If Treasury's financial agent (TFA) returns a taxpayer's ACH debit, it notifies the taxpayer by first class mail of the return (Except for insufficient funds when the financial institutions and depositaries notify the taxpayer). Because notification by first class mail could take several business days, the financial institution or depositary should consider notifying taxpayers by phone, as a customer service gesture.

  ACH Credit and Same-Day Deposits: Because of operational limitations, TFAs are unable to notify taxpayers in any manner if a deposit is returned. Financial institutions and depositaries should notify customers by phone or other expeditious means of a returned or canceled ttax payment.

• Initiate Prenotifications for ACH Credit deposits.

  Current regulations do not require prenotification for ACH credit deposits. However, Treasury strongly recommends that financial institutions and depositaries initiate a Zero Dollar Entry with TXP Addenda Record or a Prenotification Entry with the taxpayer identification number in the Entry Detail Record.

• Initiate Same-Day deposits using Fedwire Non-Value (Typecode 1090).

  Financial institutions and depositaries can use the FRB's Fedwire value transfer, Fedwire non-value transaction or the Fedline Taxpayer Deposit Application to initiate same-day deposits for their customers. If the initiator is a note option depositary, the FRB does not credit Fedwire (Typecode 1000) deposits to the depositary's note balance. Note option depositaries should initiate same-day deposits using the FRB's Fedwire non-value (Typecode 1090) or Fedline Taxpayer Deposit Application.

• Transfer deposits to Treasury on the customer initiated settlement date.

  If a financial institution or depositary transfers EFTPS deposits to Treasury before the customer initiated settlement date, it should notify the customer immediately. It is not the design of the system, or Treasury's intent, to accelerate deposits before the customer-initiated settlement date.

• Notify customers of pre-funding.

  If a financial institution or depositary requires its customer to pre-fund an account, it should ensure the taxpayer understands that the date the financial institution or depositary debits the customers account, or puts a hold on the funds, is not the date of deposit to Treasury. The date of deposit to Treasury is still the taxpayer-initiated settlement date

• Effective EFTPS deposits through a Customer Delivery System.

  Taxpayers using their financial institution's Customer Delivery System can create problems for themselves and their financial institution. Be aware that some Customer Delivery Systems:

  1) Permit taxpayers to initiate a Fedwire (Typecode 1000) when a Non-Value Fedwire (Typecode 1090) is preferable if the depositary is a note option depositary.

  2) Permit taxpayers to initiate a same-day tax deposit after the cut-off time.

  3) Use an incorrect settlement date which may cause customer service problems for the financial institution or depositary.

Help-Lines

• EFTPS Help-Lines for Financial Institutions
  
  BankOne (was First Chicago): 1-800-945-7900
  Bank of America (was NationsBank): 1-800-605-9876
  
  
• EFTPS Customer Service Lines for Taxpayers
  
  Bank One:
  English Spanish 1-800-945-8600
  TDD 1-800-945-8900
  
  Bank of America:
  English 1-800-555-4477
  Spanish 1-800-244-4829
  TDD 1-800-773-4829

• EFTPS Tax Payment Reporting (for Customers to initiate ACH Debits)
  
  Bank One:
  English 1-800-272-9872
  Spanish 1-800-945-9200
  TDD 1-800-945-9600
  
  Bank of America:
  English 1-800-555-3453
  Spanish 1-800-466-4829
  TDD 1-800-990-4829

Future Improvement:

In Mid-2000, the Federal Reserve System and Treasury will unveil the Treasury Investment Program (TIP). TIP will revamp the Treasury investment program and the Government's collateral management programs. TIP offers:

• New Investment Program option

• Enhanced investment and withdrawal options

• Improved account management tools

With the implementation of TIP, Treasury will terminate the payment of fees for FTD processing. The tremendous success of EFTPS has reduced the need for compensating depositaries to the point that the average depositary now receives compensation of less than $2 per business day. Treasury expects continued expansion of EFTPS will reduce the average compensation even further by mid-2000.

The FRB will be holding seminars on TIP sometime in the future. Please take advantage of these seminars and the promotional literature that your FRB will be distributing in the coming months.

Department of the Treasury
August 1999

Any questions about EFTPS, please call EFTPS Customer Service at 1-800-555-4477 or 1-800-945-8400 24 hours a day, 7 days a week.