IRS EXPLAINS RULES FOR PARTICIPATING IN ELECTRONIC DEPOSIT PROGRAM.

Rev. Proc. 93-26

Contents

Section 1 Purpose

The purpose of this revenue procedure is to inform taxpayers and financial institutions who participate in the TAXLINK test (TAXLINK) of their obligations to each other and the Internal Revenue Service. TAXLINK will be used to evaluate the ability of the Service to accept and accurately process taxpayers' electronic tax payment information.

SEC. 2. BACKGROUND

.01 Section 6302(c) of the Internal Revenue Code provides that the Secretary may authorize Federal Reserve banks, incorporated banks, and other financial institutions that are 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. The Secretary shall prescribe the manner, times, and conditions under which the receipt of such tax by such banks and other financial institutions is to be treated as payment of such tax to the Secretary.

.02 TAXLINK is an electronic remittance processing system. Initially, TAXLINK will be limited to the receipt of the Federal Tax Deposit (FTD) payments in connection with the tax forms listed in section 4. The Service may later expand TAXLINK by accepting additional types of payments. TAXLINK will accept two electronic funds transfer (EFT) payment options: credit and debit. See sections 10 and 11.

.03 The Department of the Treasury (Treasury) has selected three Financial Agents. These Financial Agents are identified in section 5.10. A Financial Agent will (1) receive tax payment information; (2) initiate the transfer of tax payment funds between a taxpayer's account(s) and Treasury's General Account for a debit payment transaction; (3) receive information from the Automated Clearing House (ACH) for a credit payment transaction; and (4) transmit related tax payment information to the Service. See section 7.04 for additional functions performed by a Financial Agent.

.04 Taxpayers participating in TAXLINK are responsible for ensuring that their payments are made timely. If for any reason, including rejection, an electronic payment cannot be made or the taxpayer chooses not to make an electronic payment, the taxpayer must make a timely payment through the paper coupon (Form 8109, Federal Tax Deposit Coupon) system. To avoid penalties, the payment and the paper coupon must be taken to an authorized depository bank before the close of business on the deposit due date.

.05 TAXLINK does not change the computation of tax liability, interest, penalties, or payment due dates. These computations remain the same as in the paper coupon payment system. Late deposits may be subject to penalties.

SEC. 3. ELIGIBLE TAXPAYERS

.01 Taxpayers who (1) make payments described in section 4, (2) have their principal place of business in Florida, Georgia, or South Carolina, and (3) file tax returns at the Atlanta Service Center are eligible to participate in TAXLINK. See section 6.

.02 A taxpayer who participated in the Automated Deposit for Electronic Payment of Taxes program (ADEPT) or a taxpayer who meets the criteria in section 15.03 may also participate in TAXLINK.

.03 Participation in TAXLINK is voluntary. A participating taxpayer may choose to return to the paper coupon system at any time without notice to the Service. However, a taxpayer should notify its Financial Agent if the taxpayer chooses to withdraw from the test.

.04 The Service may limit participation in TAXLINK based on the processing capacity of TAXLINK or for any other reason.

SEC. 4. ELIGIBLE TAX PAYMENTS

TAXLINK will accept payments in connection with the following tax forms:

     (1) Form 720, Quarterly Federal Excise Tax Return;

.01 The definitions provided in this section will be used for TAXLINK.

.02 ACKNOWLEDGEMENT NUMBER. An "acknowledgement number" is a unique number assigned by a Financial Agent to each TAXLINK Electronic Funds Transfer (EFT) debit transaction. An acknowledgement number may also be referred to as an EFT number, a reference number, or a transaction trace number.

.03 AUTOMATED CLEARING HOUSE (ACH). "Automated Clearing House" is a central clearing house facility where EFT instructions are exchanged between banks.

.04 ACH CREDIT TRANSACTION. An "ACH credit transaction" is a transaction in which a financial institution, upon instructions from a taxpayer, initiates a transaction with the taxpayer's payment information in the Cash Concentration or Disbursement+ Tax Payment Addenda Record (CCD+ TXP) Format. The financial institution must transmit this transaction information through an ACH to Treasury's General Account at the Federal Reserve Bank. The funds for the FTD payment are withdrawn from the taxpayer's account and are credited to Treasury's General Account on the day designated by the taxpayer. See section 10 for a description of an ACH credit transaction.

.05 CASH CONCENTRATION OR DISBURSEMENT+ TAX PAYMENT ADDENDA RECORD (CCD+ TXP) FORMAT. The "CCD+ TXP" format is the National Automated Clearing House Association's tax payment convention. This convention consists of the Cash Concentration or Disbursement electronic funds transfer transaction and an addenda record for tax payments identified by three characters, "TXP". Exhibit I is a sample ACH TXP addenda record.

.06 DEBIT TRANSACTION. A "debit transaction" is a transaction originated by a taxpayer that authorizes one of the three Financial Agents to withdraw funds from the taxpayer's account and route the funds to Treasury's General Account. See section 11.

.07 ELECTRONIC FUNDS TRANSFER (EFT). An "EFT" is the electronic transaction that initiates the movement of funds between the taxpayer's account and Treasury's General Account.

.08 EMPLOYER IDENTIFICATION NUMBER (EIN). An "EIN" is a unique nine digit identifier issued by the Service to business taxpayers for the purpose of reporting tax related information. For purposes of TAXLINK, an EIN may also be referred to as a Taxpayer Identification Number (TIN).

.09 FEDERAL RESERVE BANK (FRB). The "FRB" is the U.S. Government's fiscal agent, which maintains Treasury's General Account. The FRB also processes ACH transactions and posts those transactions to a commercial financial institution account or a Treasury account.

.10 FINANCIAL AGENT. A "Financial Agent" is either the First National Bank of Maryland (FNBM), the Mercantile Bank of St. Louis, or the Federal Reserve Bank of Minneapolis. See section 7 for a description of the functions of a Financial Agent. See section 8 for the appropriate Financial Agent for a specific geographic area and payment option.

.11 OPERATOR-ASSISTED TELEPHONE CALL. "Operator-assisted telephone call" is a payment reporting system that uses a human telephone operator to interact with a taxpayer.

.12 PAYMENT OPTION. A "payment option" is the method chosen by the taxpayer for the electronic payment of tax in TAXLINK. There are two payment options in TAXLINK. The options are an ACH credit transaction or a debit transaction.

.13 PERSONAL COMPUTER REPORTING. "Personal Computer (PC) reporting" is a payment method in which a taxpayer enters tax payment instructions through customized software on a personal computer in an off-line mode and then transmits the instructions to a Financial Agent.

.14 POINT-OF-SALE REPORTING. "Point-of-sale (POS) reporting" is a payment method in which a taxpayer enters tax payment instructions into an electronic terminal in an off-line mode and then transmits the instructions to a Financial Agent.

.15 TAXPAYER IDENTIFICATION NUMBER (TIN). A "TIN" is a unique nine digit identifier issued by the Service to taxpayers for the purpose of reporting tax related information. For purposes of TAXLINK, a TIN may also be referred to as an EIN.

.16 TOUCH-TONE REPORTING. "Touch-tone reporting" is a payment reporting system in which a touch-tone telephone is used by a taxpayer to input and transmit payment instructions to a Financial Agent.

SEC. 6. ENROLLMENT

.01 An eligible taxpayer must first decide which payment option, credit or debit, to use. See section 10 for a description of an ACH credit transaction and section 11 for descriptions of debit transactions.

.02 An eligible taxpayer must request an enrollment form and instructions from the appropriate Financial Agent. See section 8 to determine the appropriate Financial Agent.

.03 A TAXLINK applicant must submit a completed enrollment form to the appropriate Financial Agent. The only Financial Agent that will process an ACH credit transaction is FNBM.

.04 A Financial Agent will use the enrollment information to verify that the taxpayer initially provided correct information about itself and its financial institution.

.05 After the Financial Agent has verified that the taxpayer provided correct information, the Financial Agent will enter this information in its enrollment record database. The Financial Agent will verify subsequent payment transactions by comparing the information submitted with each tax payment transaction against the enrollment record data.

.06 A Financial Agent will notify a taxpayer when the enrollment process is completed and enrollment is approved.

.07 If a taxpayer attempts to make an FTD payment through TAXLINK before the enrollment process is completed and approved, the payment will be rejected.

SEC. 7. FUNCTIONS OF A FINANCIAL AGENT

.01 In response to a request from an eligible taxpayer, a Financial Agent will supply an eligible taxpayer with an enrollment form and instructions.

.02 For an ACH credit transaction originated by the taxpayer's financial institution, FNBM will receive information through an ACH and transmit the related payment data to the Service for posting to the taxpayer's account(s).

.03 For a debit transaction, the Financial Agent will initiate the transfer of tax payment funds between the taxpayer's account(s) and Treasury's General Account and transmit the related payment data, supplied by the taxpayer, to the Service for posting to the taxpayer's account(s).

.04 Regardless of the payment option, the Financial Agent will perform other functions that include, but are not limited to the following:

(1) correct out-of-balance situations;

(2) perform maintenance functions on the taxpayer data base;

(3) maintain a user-assistance service; and

(4) other services described in a memorandum of understanding or financial agent agreement.

SEC. 8. PROCESSING AREAS

Participation in TAXLINK is organized by processing areas and payment options. TAXLINK participants must use the services of the appropriate Financial Agent designated below:

 Location of Taxpayer's     Financial Agent    Payment Option(s)

.01 The taxpayer must ensure that the FTD payment is timely made. If a due date falls on a holiday, as set forth in section 9.02 below, payment must be initiated one business day before the holiday, and will be effective on the next business day following the holiday.

.02 A holiday for TAXLINK purposes is the same as a holiday on the "ACH holiday schedule." The "ACH holiday schedule" is as follows:

          (1) New Year's Day - January 1;

.04 If January 1, July 4, November 11, or December 25 fall on a Sunday, the next following Monday is a holiday.

SEC. 10. ACH CREDIT TRANSACTION

.01 A taxpayer that is eligible to participate in TAXLINK may choose to make an FTD payment by using an ACH credit transaction.

.02 A taxpayer that chooses the ACH credit payment option, must first complete the enrollment process described in section 6.

.03 After the taxpayer is notified by FNBM that the enrollment process is complete, the taxpayer must arrange to have its ACH credit payments processed by a financial institution capable of originating ACH credit transactions.

.04 In order to initiate an ACH credit transaction, a financial institution must have the capability to initiate an ACH credit transaction in the CCD+ TXP format. Exhibit I is a sample ACH TXP addenda record.

.05 At least 10 to 20 days before the first payment date, the taxpayer's financial institution must send a prenotification to FNBM through the ACH system. The prenotification must include properly formatted addenda records that contain a valid tax type code(s) and an EIN. See Exhibit I for a listing of tax type codes. A prenotification must be sent for each EIN.

.06 FNBM matches the prenotification information with the enrollment record data in FNBM's database. If the prenotification information matches the enrollment record data, FNBM notifies the taxpayer that it can begin making FTD payments through TAXLINK using the ACH credit transaction payment option.

.07 If prenotification information does not match the enrollment record data, FNBM will send to the taxpayer's financial institution a notification of change (NOC). Exhibit II lists the NOC codes and their definitions.

.08 Upon receipt of FNBM's notification that the taxpayer may begin using an ACH credit transaction to make an FTD payment, the taxpayer must familiarize itself with its financial institution's ACH processing schedule. The taxpayer is responsible for notifying its financial institution to arrange an ACH credit transaction on a timely basis that will enable the financial institution to meet its ACH deadlines. In general, the taxpayer must contact its financial institution one business day prior to the FTD payment due date to arrange an ACH credit transaction. However, a taxpayer should check its financial institution's internal processing schedule to ensure that the notification is delivered not only one day prior to the FTD payment due date, but before its financial institution's ACH processing closes for that day. A taxpayer's request to a financial institution to initiate an ACH credit transaction to make an FTD payment must be accompanied by all the tax payment information that is described in the enrollment materials that are furnished by the Financial Agent.

.09 The taxpayer's financial institution is responsible for withdrawing the funds for the FTD payment from the taxpayer's account and crediting Treasury's General Account through the ACH system on the day designated by the taxpayer. If the transaction cannot be initiated timely, the taxpayer's financial institution must advise the taxpayer of the situation. The taxpayer can then choose to make the payment using the paper coupon, Form 8109, or instruct the financial institution to complete the transaction at the next opportunity to submit an ACH transaction.

.10 FNBM will receive and process the ACH credit transaction information. FNBM will compare the transaction's remittance detail in the payment and addenda records with the taxpayer's enrollment record data. If the remittance detail matches the taxpayer's enrollment record data, then FNBM sends the FTD payment information to the Service to be applied to the taxpayer's account.

.11 If FNBM detects an error, the FTD payment will be returned to the originating financial institution and subsequently to the taxpayer. A taxpayer and the taxpayer's financial institution must furnish information that is correct, complete, and in the proper format for each EFT of an FTD payment. Failure to provide correct, complete, and properly formatted information may cause an EFT of an FTD payment to be rejected. Exhibit III lists errors that will cause a payment rejection. In the event of a rejection, it may be possible for a taxpayer to make a timely FTD payment by reverting to the paper coupon system.

.12 The Service will generally deem an FTD payment to have been made on the date the funds have been credited to Treasury's General Account.

SEC. 11. DEBIT TRANSACTIONS

.01 A taxpayer that is eligible to participate in TAXLINK may choose to make an FTD payment by using a debit transaction.

.02 A taxpayer that chooses a debit transaction payment option must first complete the enrollment process described in section 6.

.03 Upon receipt of a Financial Agent's notification that the taxpayer may begin using a debit transaction to make an FTD payment, the taxpayer must familiarize itself with the Financial Agent's instructions. Of particular importance is the processing schedule specified by the Financial Agent for reporting payment information. In general, the taxpayer must contact the Financial Agent one business day prior to the FTD payment due date to arrange a debit transaction. The taxpayer must also ensure that the payment information is complete by the cut-off time specified by the Financial Agent.

.04 To make an FTD payment using a debit transaction, a taxpayer must give timely instructions to the appropriate Financial Agent to withdraw funds in the amount of the taxpayer's FTD payment from the taxpayer's account and route the funds to Treasury's General Account. The taxpayer must also give the Financial Agent the payment information that is described in the enrollment materials that are furnished by the Financial Agent. Depending on the Financial Agent's test system, the taxpayer may be able to use personal computer reporting, point-of-sale reporting, touch-tone reporting, or an operator-assisted telephone call to relay the payment information to the Financial Agent.

.05 In the test being conducted by the Mercantile Bank of St. Louis, the taxpayer must deliver the payment data to the taxpayer's financial institution. The taxpayer's financial institution will relay the payment data to the Financial Agent.

.06 After validating the payment information, the Financial Agent will issue an acknowledgement number to the taxpayer. The acknowledgement number verifies that the required payment information was received.

.07 The Financial Agent initiates the movement of funds from the taxpayer's account to Treasury's General Account on the date designated by the taxpayer.

.08 The Service will generally deem an FTD payment to have been made on the date the Financial Agent withdraws the funds for the FTD payment from the taxpayer's account.

SEC. 12. PROOF OF PAYMENT

.01 A statement prepared by a financial institution showing a transfer (i.e., a decrease to the taxpayer's account balance) will be accepted as proof of payment if the statement shows:

(1) the amount of the transfer;

(2) the date the transfer was posted to the taxpayer's account by the financial institution; and

(3) the Service as the payee.

However, in certain circumstances, the Service may also require that the taxpayer provide the underlying bank records that verify the transfer in question.

.02 For purposes of TAXLINK, statements prepared by a financial institution include statements prepared by a third party that is contractually obligated to prepare statements for the customers of the financial institution.

SEC. 13. REFUNDS

After a TAXLINK transaction is credited to Treasury's General Account, a request for a refund or adjustment of all or any part of the FTD payment must be made to the Service through existing refund or adjustment procedures. No refunds will be made through TAXLINK.

SEC. 14. RETURNS AND REVERSALS

.01 A Financial Agent can return a payment in an "insufficient funds situation." An insufficient funds situation exists when:

(1) there are insufficient funds in the taxpayer's account to fund the FTD payment;

(2) the taxpayer's account is closed or frozen; or

(3) the FTD payment has been stopped.

.02 An ACH credit reversal will rarely be allowed. One instance where an ACH credit reversal may be allowed is where there is a duplication of a payment file by the originating financial institution. Prior to initiating a credit reversal, the financial institution that made the error must call the TAXLINK Operation's Unit at (404) 455-2389 (not a toll-free number) and provide a complete explanation of the problem. The Unit will begin its research after the telephone call. In addition, the financial institution must provide a written statement that confirms all the information provided in the telephone call and any other relevant information. A responsible bank official must sign the written confirmation. The financial institution must FAX the written confirmation to the TAXLINK Operation's Unit at (404) 455-2512 (not a toll-free number). Until receipt of a satisfactory written explanation, no reversal will be accepted.

.03 All ACH credit reversals will be monitored by the Service. If a reversal is considered inappropriate, the Service will instruct the Financial Agent to return the ACH credit reversal request to the originating financial institution.

SEC. 15. STATUS OF ADEPT

.01 Under the auspices of the Assistant Commissioner of Research and Planning, the Service conducted a test of electronic funds transfers. This test was called ADEPT, an acronym for Automated Deposit of Electronic Payments for Taxes. The Service has terminated ADEPT.

.02 TAXLINK will also accept payments from New England taxpayers who meet the criteria described in section 15.05. The tax payment information will no longer be sent to the Andover Service Center, as it was under ADEPT. The tax payment information will now be sent to the Atlanta Service Center for posting to the taxpayer's account.

.03 If eligible taxpayers in the New England area who participated in ADEPT choose to continue to make electronic payments, they must participate in TAXLINK and follow this revenue procedure.

.04 An eligible taxpayer who has not participated in ADEPT, but meets the criteria in section 15.05, may choose to participate in TAXLINK through a bank identified in section 15.05(2).

.05 Under this section, to be eligible to participate in TAXLINK a taxpayer must:

(1) file its tax return with the Andover Service Center;

(2) be a customer of Durfee Attleboro Bank, Shawmut Bank, or First New Hampshire Bank; and

(3) agree to use the ACH credit payment option in the CCD+ TXP format.

.06 Taxpayers described in section 15.05 may only make electronic FTD payments in connection with Form 940, Employer's Annual Federal Unemployment Tax Return, and Form 941, Employer's Quarterly Federal Tax Return.

SEC. 16. EVALUATION

TAXLINK will be continuously evaluated by the Service. The Service anticipates that this evaluation process, combined with information provided by taxpayers and financial institutions, will be used to assist in designing a nationwide EFT processing system. Payment procedures for a nationwide EFT processing system may be different than those for TAXLINK.

SEC. 17. EFFECTIVE DATE

This revenue procedure is effective on June 1, 1993.

SEC. 18. ADDITIONAL INFORMATION ABOUT TAXLINK

.01 Taxpayers that would like additional information about TAXLINK may write to:

          Internal Revenue Service

.02 Financial institutions that would like additional information about TAXLINK may write to:

          Electronic Tax Collection Team

SEC. 19. IRS CASH MANAGEMENT SYSTEM PROJECT OFFICE CONTACT

All questions regarding this revenue procedure should be directed to the IRS Cash Management System Project Office. The telephone number for this office is (703) 235-0245 (not a toll-free number).

                               Exhibit I