For Tax Professionals  
T.D. 8918 December 26, 2000

Removal of Federal Reserve Banks as
Federal Depositaries.

Internal Revenue Service 26 CFR Part 301 [TD 8918] RIN 1545-AY11

TITLE: Removal of Federal Reserve Banks as Federal Depositaries.

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations

SUMMARY: This document contains temporary regulations relating to
the deposit of Federal taxes pursuant to section 6302 of the
Internal Revenue Code. The regulations remove Federal Reserve banks
as authorized depositaries for Federal tax deposits. The regulations
affect taxpayers that make Federal tax deposits using paper Federal
Tax Deposit (FTD) coupons (Form 8109) at Federal Reserve banks.

DATES: Effective Date: These regulations are effective December 26,

Applicability Date: These regulations apply to deposits made after
December 31, 2000.

FOR FURTHER INFORMATION CONTACT: Brinton T. Warren (202) 622-4940
(not a toll-free number).


Background and Explanation of Provisions

This document contains amendments to the Procedure and
Administration Regulations (26 CFR part 301) 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 Department's 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
Department's 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

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 temporary 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.
The IRS is also issuing proposed regulations that remove Federal
Reserve banks as depositaries of Federal taxes. See the notice of
proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.

Special Analyses

It has been determined that this Treasury decision 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.

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 in 26 CFR Part 301

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

Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows: Paragraph 1. The
authority citation for part 301 continues to read in part as

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

Par. 2. Section 301.6302-1T is added to read as follows:

301.6302-1T Use of Federal Reserve banks after December 31, 2000
Federal Reserve banks are not authorized depositaries for Federal
tax deposits made after December 31, 2000.

Deputy Commissioner of Internal Revenue
Assistant Secretary for Tax Policy


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