For Tax Professionals  
REG-107176-00 December 26, 2000

Removal of Federal Reserve Banks as
Federal Depositaries.

DEPARTMENT OF THE TREASURY   
Internal Revenue Service 26 CFR Parts 1, 31, 35, 36, 40, 301, 601
[REG-107176-00] RIN 1545-AY10

TITLE: Removal of Federal Reserve Banks as Federal Depositaries.

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations which remove
the Federal Reserve banks as authorized depositaries for Federal tax
deposits. The regulations affect taxpayers who make Federal tax
deposits using paper Federal Tax Deposit (FTD) coupons (Form 8109)
at Federal Reserve banks.

DATES: Written or electronically generated comments and requests for
a public hearing must be received by March 26, 2001.

ADDRESSES: Send submissions to: CC (REG-107176-00), room 5226,
Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to: CC
(REG-107176-00), Courierís Desk, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers
may submit comments electronically via the Internet by @ A selecting
the  Tax Regs   option on the IRS Home Page, or by submitting
comments directly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed
regulations, Brinton T. Warren, (202) 622-4940; concerning
submissions of comments and requests for a public hearing, Treena
Garrett of the Regulations Unit at (202) 622-7180 (not toll-free
numbers).

SUPPLEMENTARY INFORMATION

Background and Explanation of Provisions

     This document contains proposed amendments to 26 CFR parts 1,
31, 35, 36, 40, 301, and 601 relating to Federal tax deposits under
section 6302(c) of the Internal Revenue Code (Code). Section 6302(c)
provides that the Secretary may authorize Federal Reserve banks, and
incorporated banks, trust companies, domestic building and loan
associations, or credit unions that are depositaries or financial
agents of the United States, to receive any tax imposed under the
internal revenue laws, in such manner, at such times, and under such
conditions as the Secretary may prescribe. Pursuant to this
authority, various regulations provide that Federal Reserve banks,
as well as other authorized financial institutions, may receive
certain Federal tax deposits.

     In cooperation with the Treasury Departmentís Financial
Management Service (FMS), the Federal Reserve System has been
streamlining its Treasury Tax and Loan (TT&L) Operation to respond
to the fact that the overwhelming majority of Federal Tax Deposits
(FTDs) are now received electronically. The widespread adoption of
electronic deposits by taxpayers is an important aspect of improving
the efficiency, reliability, and cost-effectiveness of the Treasury
Departmentís financial management.

In general, compared to the universe of all tax deposits, the
percentage of FTDs made with paper coupons has significantly
declined. FTDs made with paper coupons at Federal Reserve banks now
constitute only a tiny percentage of all tax deposits. For example,
in Fiscal Year 1999, of the approximately 100 million Federal tax
deposits, made by paper coupon and electronically, only about
270,000, or less than one half of one percent, were paper coupons
presented at Federal Reserve banks. Additionally, the number of
paper coupons presented at Federal Reserve banks has declined over
twenty-five percent since 1997.

     The Treasury Department has developed an array of other deposit
options that are more convenient for taxpayers to use, and more
economical to process, than deposits with Federal Reserve banks. For
example, taxpayers may use their touch tone telephone or personal
computer to make deposits 24 hours a day through the Electronic
Federal Tax Payment System (EFTPS). For those taxpayers who still
prefer paper coupons over electronic deposits, there are now more
than 10,000 financial institutions nationwide that are designated as
TT&L depositaries where taxpayers may make FTD deposits using paper
coupons.

     In response to the declining number of deposits being made with
paper coupons at Federal Reserve banks, the Federal Reserve Bank of
St. Louis was selected, effective May 1, 2000, to serve as the only
Federal Reserve bank accepting FTDs. Even after this consolidation,
however, it is no longer cost-effective for the Federal Reserve bank
in St. Louis to process the small number of paper coupons it
receives annually. Accordingly, these proposed regulations remove
all Federal Reserve banks as depositaries for Federal taxes. To
mitigate any difficulties for those taxpayers who still do not wish
to use the deposit alternatives discussed above, the Treasury
Department has authorized a financial agent to receive and process
FTD payments through the mail, thereby maintaining a mail-in
alternative for taxpayers who do not have an account with an
authorized financial institution and who do not wish to use EFTPS.
The address for this mail-in alternative is Financial Agent, Federal
Tax Deposit Processing, P.O. Box 970030, St. Louis, Missouri, 63197.

Proposed Effective Date

     The regulations, as proposed, apply to any deposits of Federal
taxes made after the date of publication of a Treasury decision
adopting these rules as final regulations in the Federal Register.

Special Analyses

     It has been determined that this notice of proposed rulemaking
is not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also
has been determined that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not apply to these
regulations, and because the regulations do not impose a collection
of information on small entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the
Internal Revenue Code, these regulations will be submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.

Comments and Public Hearing

     Before these proposed regulations are adopted as final
regulations, consideration will be given to any written (a signed
original and 8 copies) and electronic comments that are submitted
timely to the IRS. The IRS and Treasury Department request comments
on the clarity of the proposed rules and how they can be made easier
to understand. All comments will be available for public inspection
and copying. A public hearing will be scheduled if requested in
writing by any person that timely submits comments. If a public
hearing is scheduled, notice of the date, time, and place for the
public hearing will be published in the Federal Register.

Drafting Information

     The principal author of these regulations is Brinton T. Warren
of the Office of Associate Chief Counsel, Procedure and
Administration (Administrative Provisions and Judicial Practice
Division). However, other personnel from the IRS and Treasury
Department participated in their development.

List of Subjects

26 CFR Part 1

     Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

     Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social
security, Unemployment compensation.

26 CFR Part 35

     Employment taxes, Income taxes, Reporting and recordkeeping
requirements.

26 CFR Part 36

     Employment taxes, Foreign relations, Reporting and
recordkeeping requirements, Social security.

26 CFR Part 40

     Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

     Employment taxes, Estate taxes, Excise taxes, Gift taxes,
Income taxes, Penalties, Reporting and recordkeeping requirements.

26 CFR Part 601

     Administrative practice and procedure, Freedom of information,
Reporting and recordkeeping requirements, Taxes. Proposed Amendments
to the Regulations

     Accordingly, and under the authority of 26 U.S.C. 7805 and 5
U.S.C. 301, 26 CFR parts 1, 31, 35, 36, 40, 301 and 601 are proposed
to be amended as follows:

PART 1--INCOME TAXES

     Paragraph 1. The authority citation for part 1 continues to
read in part as follows:

     Authority: 26 U.S.C. 7805 * * *

     Par. 2. Section 1.6302-1 is amended by removing the fifth
sentence in paragraph (b)(1).

     Par. 3. Section 1.6302-2 is amended by removing the third
sentence in paragraph (b)(1).

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

     Par. 4. The authority citation for part 31 continues to read in
part as follows:

     Authority: 26 U.S.C. 7805 * * *

     Par. 5. Section 31.6302-1 is amended by removing the fourth
sentence in paragraph (i)(3).

     Par. 6. Section 31.6302(c)-3 is amended by removing the third
sentence in paragraph (b)(2).

PARTS 1, 31, 35, 36, 40, 301, 601   B [AMENDED]

     Par. 7. In the list below, for each section indicated in the
left column, remove the language in the middle column and add, if
any, the language in the right column:

                       Section Remove Add

1.1461-1(a), a Federal reserve an effective January 1, bank or 2001

1.1502-5(a)(1) commercial financial dispositary or institution
Federal Reserve Bank

1.6151-1(d)(1) Federal Reserve ------------------ Banks or Section
Remove Add

1.6302-1(b)(1) 214 or, at the 203 fourth sentence election of the
corporation, to a Federal Reserve bank

1.6302-1(b)(1)(as the Federal ------------------ amended by
paragraph Reserve bank or 2) fifth sentence

1.6302-2(a)(1)(i) a Federal Reserve an bank or

1.6302-2(a)(1)(ii) a Federal Reserve an bank or

1.6302-2(a)(1)(iv) a Federal Reserve an bank or

1.6302-2(b)(1) 214 or, at the 203 second sentence election of the
withholding agent, to a Federal Reserve bank

1.6302-2(b)(1)(as the Federal ------------------ amended by
paragraph Reserve bank or 3) third sentence

1.6302-3(a) or with a Federal ------------------ Reserve Bank

31.6071(a)-1(a)(1) or by a Federal ------------------ Reserve bank

31.6071(a)-1(c) a Federal Reserve ------------------ bank or by

31.6151-1(b) Federal Reserve ------------------ banks and

31.6302-1(c)(1) a Federal Reserve an bank or

31.6302-1(c)(2)(i) a Federal Reserve an bank or Section Remove Add

31.6302-1(c)(3) a Federal Reserve an bank or

31.6302-1(i)(3) 214 or, at the 203 election of the employer, to a
Federal Reserve bank

31.6302-1(i)(5) the Federal ------------------ Reserve bank or

31.6302(c)- with a Federal ------------------ 2A(b)(1)(i) Reserve
bank or

31.6302(c)-2A(b)(3) with a Federal ------------------ Reserve bank
or

31.6302(c)- with a Federal ------------------ 3(a)(1)(i) Reserve
bank or

31.6302(c)- with a Federal ------------------ 3(a)(1)(ii) Reserve
bank or

31.6302(c)-3(a)(3) with a Federal ------------------ Reserve bank or

31.6302(c)-3(b)(2) 214 or, at the 203 second sentence election of
the employer, to a Federal Reserve bank

31.6302(c)- the Federal ------------------ 3(b)(2)(as amended
Reserve bank or by paragraph 6) third sentence

35.3405-1T(e-10) a Federal Reserve ------------------ Bank or

36.3121(l)(10)-4 a Federal Reserve an bank or

40.6302(c)-1(d)(1) 214) or to a 203) Federal Reserve bank Section
Remove Add

301.6302-1(a) Federal Reserve authorized banks and financial
authorized institutions commercial banks

301.6302-1(b)(1) Federal Reserve authorized banks or financial
authorized institutions commercial banks

301.6302-1(b)(2) Federal Reserve authorized banks or financial
authorized institutions commercial banks

301.9100-5T(c)(3) Federal Reserve ------------------ banks and

601.401(a)(5) Federal Reserve ------------------ heading banks and

601.401(a)(5)(iii) a Federal Reserve an first sentence bank or

601.401(a)(5)(iii) a Federal Reserve an second sentence bank or
Section Remove Add

601.401(a)(5)(iv) a Federal Reserve an authorized bank or a
financial financial institution institution authorized in accordance
with Treasury Department Circular No. 1079, revised, to accept
remittances of these taxes for transmission to a Federal Reserve
bank.

Deputy Commissioner of Internal Revenue


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