October 5, 1994
TO: ACCOUNTING/TREASURERS MEMBERS NO. 29-94
TAX MEMBERS NO. 41-94
TRANSFER AGENT ADVISORY COMMITTEE NO. 41-94
RE: DEPOSITING TAXES VIA ELECTRONIC FUND TRANSFERS
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As you may know, legislation adopted in 1993 to implement
the North American Free Trade Agreement requires most taxpayers
to deposit taxes they withhold via electronic fund transfers
("EFT"). The requirement, which is to be phased in over several
years, will apply to payroll taxes and taxes withheld under the
backup withholding rules and the rules governing withholding on
payments to non-resident aliens (Non-payroll Income Taxes). The
requirement will apply to the very largest taxpayers beginning
January 1, 1994, and will apply to all but the smallest taxpayers
by the year 2000.
The Institute recently became aware that the current system
for processing electronic tax remittances, TAXLINK, may make it
difficult for taxpayers, including mutual funds, to deposit their
taxes on a timely basis using EFTs. Most mutual funds determine
the amount of non-payroll income tax to be withheld as a result
of each day's transactions late in the evening, after all the
day's transactions have been processed. Withheld amounts
generally are deposited the next business day. TAXLINK presently
requires taxpayers to provide notice the day before a deposit is
to be made of the amount to be deposited. Because funds do not
know how much they will be depositing the next day until after
normal business hours, they typically cannot provide the prior-
day's notice TAXLINK requires.
Attached is an Institute letter to the IRS commenting on the
regulations that implement the EFT deposit rules. The letter
outlines the problems with the TAXLINK system and requests that
they be corrected. We understand that the IRS is attempting to
improve the system before large numbers of taxpayers are required
to use it.
We will keep you informed of developments.
Peter J. Cinquegrani
Assistant Counsel - Tax