Treasury Tax and Loan Depositaries and Payment of Federal Taxes

SUMMARY: The Internal Revenue Code mandates that certain taxpayers use

electronic funds transfer (EFT) for the payment of Federal taxes.

Temporary regulations published by the Internal Revenue Service (IRS)

implement this requirement, providing guidance to taxpayers relating to

the deposit of taxes using EFT mechanisms. These proposed regulations

are necessary for the operation of the Electronic Federal Tax Payment

System (EFTPS). The EFTPS is projected to begin operation in the fall

of 1996. These regulations provide rules for financial institutions and

Federal Reserve Banks that use EFT mechanisms to process Federal tax

payments through the EFTPS. The regulations also update the rules

governing Treasury's investment program. The Small Business Job

Protection Act of 1996 provides that certain taxpayers are not required

to begin using EFT until July 1, 1997 (rather than, as originally

scheduled, on January 1, 1997). This change does not affect and is not

addressed in these regulations.

DATES: Comments must be received on or before November 29, 1996.

ADDRESSES: Comments or inquiries may be mailed to Cynthia L. Johnson,

Director, Cash Management Policy and Planning Division, Financial

Management Service, Room 420, 401 14th Street, S.W., Washington, DC

20227. A copy of this proposed rule is being made available for

downloading from the Financial Management Service home page at the

following address: http://www.ustreas.gov/treasury/bureaus/finman/.

FOR FURTHER INFORMATION CONTACT: Mark Matolak, Financial Program

Specialist; Donald E. Clark, Financial Program Specialist; Cynthia L.

Johnson, Director, Cash Management Policy and Planning Division, 401

14th Street, S.W., Washington, D.C. 20227, (202) 874-6590; or Margaret

Roy, Principal Attorney, at (202) 874-6680.

SUPPLEMENTARY INFORMATION:

Background

Currently, 31 CFR Part 203 governs the designation of certain

financial institutions as Treasury tax and loan (TT&L) depositaries;

TT&L depositary participation in the paper-based Federal Tax Deposit

(FTD) system; and investment of Treasury's excess operating cash in

TT&L investments. This document proposes use of five new electronic

methods of paying taxes, and proposes slight changes to the investment

program.

Tax Payment Methods

Pursuant to section 6302(h) of the Internal Revenue Code, the

Secretary of the Treasury is to develop and implement an electronic

funds transfer (EFT) system to be used for the collection of depository

taxes, so that the taxes are credited to the General Account of the

Treasury on the tax due date. See Pub. L. No. 103-182, Sec. 523, 107

Stat. 2057, 2161 (1993); codified at 26 U.S.C. 6302(h). The Act

mandates that a certain percentage of certain types of taxes be

collected using EFT methods each year. To meet these requirements, the

Financial Management Service (FMS) has, in conjunction with the

Internal Revenue Service (IRS) and Federal Reserve Banks (FRB), devised

the Electronic Federal Tax Payment System (EFTPS), which is an

electronic system for reporting and paying Federal taxes. The EFTPS

will benefit both taxpayers and the Federal Government by providing

greater payment and reporting efficiencies and by expediting the

availability of funds and investment decision-making information. These

revisions will govern the processing of tax payments through the EFTPS

by financial institutions and the FRBs.

Currently, most depository taxes are paid using the paper-based FTD

system, which requires the taxpayer to present its tax payment and a

paper coupon to a financial institution designated by the Treasury

Department (Treasury) as a TT&L depositary. The depositary stamps the

coupon, forwards it to Treasury, and credits the payment to a non-

interest bearing TT&L account. The depositary retains the funds

overnight. The next day the TT&L account is debited and the funds are

either invested in obligations of the TT&L depositary or are

transferred to Treasury's General Account (TGA) at the FRB.

The effort to convert the current paper-based FTD system to an

electronic system has been underway since 1990 with the use of the

prototype ADEPT and TAXLINK systems. Most recently, TAXLINK was

developed to test two methods of electronic payment: Automated Clearing

House (ACH) debit and credit entries. These two methods are well

established in both the Federal and private sectors. Using the ACH

debit method, Treasury, through a financial agent and with the

authorization of the taxpayer, sends an electronic debit entry to a

taxpayer's account at the taxpayer's financial institution. Using the

ACH credit method, the taxpayer authorizes its financial institution to

send an electronic credit entry from the taxpayer's account to

Treasury. After the initial authorization process, the financial

institution must begin the ACH payment process at least one business

day before the tax due date. Thus, ACH debit and credit entries are

``future-day'' entries. These methods have proved successful in the

TAXLINK program, and are incorporated into the EFTPS system.

The EFTPS program also offers three other payment methods. These

methods, Fedwire value, Fedwire non-value, and Direct Access, are

different from ACH methods in that Treasury gains the value of the

payment the same day that the payment is initiated. Thus, these three

methods are called ``same-day'' payment methods. They are considered

exception processing and are offered to accommodate the needs of

certain taxpayers that do not have information available to initiate

the transaction one business day prior to the tax due date, or to

correct a deficiency in an ACH payment.

Fedwire value is a funds transfer system owned and operated by the

FRBs and currently is used by the FMS for collections. Fedwire non-

value is a new method of collection, which involves sending information

and authorization to make payments over the FRBs' Fedwire system. The

Direct Access method also involves sending information to the Federal

Reserve, but uses a computer interface or a new application called the

``Fedline Taxpayer Deposit Application.'' The FMS reserves the right to

add additional methods of electronic funds transfer in the future, as

appropriate.

Financial Institution Participation and Responsibilities

The EFTPS will increase the ability of all financial institutions

to participate in processing Federal tax payments. Currently, financial

institutions must be designated as TT&L depositaries to process FTD

payments, and must pledge collateral to secure the tax collections they

process. In contrast, financial institutions processing tax payments

under the EFTPS need not be designated as TT&L depositaries and need

not pledge collateral, unless they elect to participate in Treasury's

investment program.

[[Page 51187]]

In order to provide maximum flexibility to taxpayers and financial

institutions, the FTD system is not being eliminated at this time.

However, the FMS anticipates that by 1999, it will transition those

taxpayers using the FTD system to another form of payment, such as a

lockbox arrangement. The proposed regulations governing the FTD system

are not substantially changed from the current rule.

Financial institutions which process EFTPS payments for their

taxpayer customers have the following responsibilities: assisting

taxpayers in enrolling in the system; initiating and responding to ACH

prenotification entries; processing both ACH and/or same-day

transactions; and providing a transaction trace number to the taxpayer

as evidence that the taxpayer has completed those actions necessary to

initiate a tax payment. By contract with the taxpayers, financial

institutions may impose conditions to making payments, consistent with

these regulations and applicable law.

To assist in the processing of the tax payments and tax

information, the FMS has designated two financial institutions as

Treasury's financial agents. These two institutions will enroll all

mandated and voluntary EFT taxpayers in the EFTPS, compile payment

information for Treasury, and in the case of the ACH debit method,

originate the debit entries to the taxpayer's financial institution. In

addition, the FRBs, in their capacity as fiscal agents for Treasury,

play a role in the system by providing same-day reporting and payment

mechanisms.

In general, this rulemaking proposes to place liability for errors

on the party making the errors. If the taxpayer properly instructs the

financial institution and complies with all requirements of its

financial institution, and the financial institution is late in

transmitting the tax payment to Treasury, then the FMS will charge the

financial institution for the lost value of funds.

The regulations provide that, by processing these transactions, the

financial institution authorizes the FRB to charge the interest to the

financial institution's reserve account. This interest provision serves

the dual purposes of encouraging financial institutions to follow

efficient procedures, and of recovering the value of the funds for the

Government.

The two financial institutions designated as Treasury's financial

agents to perform services such as compiling payment information, and

originating ACH debit entries, are prohibited from charging taxpayers

for these services.

Treasury's Investment Program

In addition to providing guidance for financial institutions in

processing tax payments, these regulations also govern Treasury's

investment program. Under that program, Treasury invests in open-ended,

interest-bearing obligations of the financial institution held in a

``note balance.'' To receive investments, a financial institution must

be designated as a TT&L depositary and must post collateral.

Currently, funds for investment are derived from FTD payments. With

the implementation of the EFTPS, electronic payments also will be a

source of funds.

For TT&L note option depositaries processing EFTPS payments, an

important consideration in selecting an electronic payment mechanism is

the availability of funds to Treasury's investment program. Of the five

EFT methods, Fedwire value is the least appealing to both Treasury and

TT&L note option depositaries. Under Fedwire value, monies collected

are not directly invested in interest-bearing obligations of TT&L note

option depositaries, but instead are credited first to the TGA at the

FRB. Use of Fedwire value thus not only diverts funds from the banking

system, but also delays Treasury's investment opportunities.

Related Rules

Regulations promulgated by the IRS govern the rights and

responsibilities of taxpayers using the EFTPS. See temporary

regulations published at 59 FR 35,414 and 61 FR 11548. The ACH debit

and credit entries covered by this Part also will be subject to 31 CFR

Part 210. The FMS published for comment proposed revisions to Part 210

on September 30, 1995. (See 59 FR 50,112). The FMS anticipates issuing

a revised notice of proposed rulemaking for Part 210 in the near

future. Publication of the revisions to 31 CFR Part 203 at this time is

important because of the dramatic increase in volume of EFT tax

payments expected as the EFTPS is implemented. Procedural instructions

for financial institutions on the EFTPS will be found in the Treasury

Financial Manual, and FRB Operating Circulars.

Comments

The FMS invites comments on all aspects of these proposed

regulations. The FMS is interested in how these rule changes may affect

the banks' participation in this program and their relationships with

their customers. In particular, comments are requested on the

following:

1. Section 203.13 of the proposed regulations provides that the FMS

may establish that ACH credit entries made at the direction of

taxpayers be delivered to the FRB by a deadline that is different from

that currently required for ACH credit entries.

The FMS anticipates that if a different deadline is required, it

would be approximately 11:00 p.m. on the day before the entry is to

settle. This potential deadline ensures sufficient time for the

transfer of credit entry information to Treasury for purposes of

maximizing the timely investment of tax receipts.

2. In Sec. 203.13(c)(1) of the proposed regulations, financial

institutions are required to send an ACH prenotification entry for each

new taxpayer paying taxes using the ACH credit entry method. This entry

may be in the form of a zero dollar ACH entry.

This requirement is to validate taxpayer data to ensure that future

payments can be posted to the credit of the correct taxpayer.

3. Section 203.6(a) of the proposed regulations allows depositaries

the option of either electing to continue to process paper-based FTDs,

or choosing not to process such FTDs. This section affords financial

institutions maximum flexibility to determine the services they wish to

offer, and relies on market forces to provide sufficient services.

4. The FMS is contemplating restricting the use of the same-day

options (Fedwire non-value and Direct Access) to TT&L note option

depositaries. This action will ensure that tax payments will remain

within the commercial banking system by flowing directly to TT&L note

option depositaries, thereby maximizing Treasury's investment

opportunities.

5. What effects, if any, these changes have on the business

relationships of financial institutions with taxpayer/customers and/or

with the Government?

Section by Section Analysis

The following lists the proposed sections, and notes the changes

from the current regulation.

1. Subpart A--General Information--Secs. 203.1-203.9 generally

update the current rule, with no substantive changes.

Several new definitions are added to Sec. 203.2 (Definitions) to

reflect the new methods of payment; other definitions are updated and

clarified. Sections 203.3 and 203.4, regarding financial institution

eligibility and application for depositary status, are revised, with

minor nonsubstantive changes, from Sec. 203.3 of the current rule.

Section 203.5 regarding the depositary agreement, is based on current

Sec. 203.6. Section 203.6, regarding the obligations of the

[[Page 51188]]

depositary, updates current Sec. 203.7 and adds a provision regarding

the obligation of a depositary which only processes electronic

payments.

Section 203.7 (Compensation for Services) retains the intent of

current Sec. 203.13, and adds that the Federal Government may decide

not to compensate financial institutions for processing tax payments.

Section 203.8 combines the information in current Secs. 203.11 and

203.15 regarding termination of depositary status and change of

options. Section 203.9 (Additional Instructions) combines references to

procedural instructions and Federal Reserve instructions.

2. Subpart B--Electronic Federal Tax Payments--Secs. 203.10-203.17

are entirely new; the current rule provides only for paper tax

payments. Section 203.10 defines the scope of the subpart and states

that financial institutions which process electronic tax payments shall

adhere to the provisions of Part 203.

Section 203.11 describes the financial institution's responsibility

in processing taxpayer enrollments. Financial institutions shall verify

enrollment information and sign the enrollment form. The enrollment

information must be transmitted to Treasury's financial agent in paper

form and may also be transmitted electronically.

Section 203.12 describes generally the five types of electronic

payment methods.

Section 203.13 lists the responsibilities of financial institutions

in originating and receiving ACH credit and debit entries. Financial

institutions are required to verify the accuracy of the first entry

sent to or from Treasury, in order to ensure that the taxpayer's

payment will be credited correctly. This section also states that

credits sent by financial institutions can only be reversed with the

approval of the IRS.

Section 203.14 lists the responsibilities of the financial

institutions in originating same-day payments. Same-day payments must

be received by 2:00 p.m. FRB head office local zone time. If not

received by that time, the FRB will return the payments to the

financial institution. A financial institution may obtain a reversal of

a payment prior to 2:00 p.m., but, after that time, the financial

institution may obtain a reversal only in certain circumstances and

only with the assent of the IRS. Further, the financial institution

must be prepared to supply the taxpayer with a transaction trace

number, in case of questions regarding the payment.

Section 203.15 imposes late fees on financial institutions which

delay the transmission of the tax payment. These late fees are similar

to those currently imposed by Sec. 203.10. Generally, the regulations

attempt to recover the value of funds lost due to late payments.

Financial institutions will not be charged late fees when the delay or

non-payment is due to the taxpayer failing to satisfy financial

institution conditions.

Section 203.16 explains that all debit entries to the Treasury are

examined for prior authorization. In the unlikely event that such an

unauthorized entry is posted to the TGA, this section imposes a higher

rate of interest on the financial institution originating the entry.

Section 203.17 provides an administrative appeal process for

financial institutions which are assessed late fees or interest

charges.

3. Subpart C--Federal Tax Deposits--Secs. 203.18-203.20 are modeled

on current Secs. 203.5, 203.9 and 203.10, governing the acceptance and

processing of FTD coupons. Definitions of classes of depositaries in

current Secs. 203.9(a) and 203.10(a) are deleted and will be contained

in procedural instructions.

4. Subpart D--Investment Program--Secs. 203.22-203.25 describe

Treasury's investment program and collateral security requirements.

This is the program in which Treasury invests in obligations of the

TT&L note option depositary using tax payments transmitted by the

depositary; and/or makes direct or special direct investments, which

are additional funds invested in depositary obligations.

Section 203.25(f) is modeled on existing Sec. 203.14(f)(1). The FMS

has in the past received inquiries regarding its interpretation of

existing Sec. 203.14(f)(1). The existing provision provides that in the

event of a depositary's insolvency, the pledged collateral is available

to satisfy any claim of the United States. The FMS interprets this

provision broadly. Specifically, in the event a depositary is placed in

receivership, existing Sec. 203.14(f)(1) authorizes the FMS to apply

the collateral to satisfy any claim of the United States, including,

but not limited to, claims arising out of the depositary relationship

for which the collateral was originally pledged. This position is

consistent with the FMS' longstanding interpretation of Part 203.

Proposed Sec. 203.25(f) expands Treasury's authority to liquidate

collateral pledged by TT&L depositaries in the event the depositary

fails to pay timely amounts owed to the United States. This provision

is calculated to protect the Federal Government from loss.

The list of acceptable securities found at current Sec. 203.14(d)

is deleted and will be contained in procedural instructions.

Regulatory Analysis

The regulations are not a significant regulatory action as defined

in Executive Order 12866. Accordingly, a regulatory assessment is not

required. It is hereby certified that this revision will not have a

significant economic impact on a substantial number of small entities.

Therefore, a regulatory flexibility analysis is not required. This

change will not impose significant costs on small businesses. It is

expected that costs, if any, associated with electronic tax processing

will be offset by cost savings resulting from reductions in the

paperwork burden and the availability of a user-friendly electronic tax

collection system.

List of Subjects in 31 CFR Part 203

Banks, Banking, Electronic Funds Transfers, Taxes.

For the reasons set out in the preamble, 31 CFR part 203 is

proposed to be revised to read as follows:

PART 203--TREASURY TAX AND LOAN DEPOSITARIES AND PAYMENT OF FEDERAL

TAXES

Subpart A--General Information

Sec.

203.1 Scope.

203.2 Definitions.

203.3 Financial institution eligibility for designation as a

Treasury tax and loan depositary.

203.4 Designation of financial institutions as Treasury tax and

loan depositaries.

203.5 Parties to the agreement.

203.6 Obligations of the depositary.

203.7 Compensation for services.

203.8 Termination of agreement or change of election or option.

203.9 Additional instructions.

Subpart B--Electronic Federal Tax Payments

203.10 Scope of the subpart.

203.11 Enrollment.

203.12 Electronic payment methods.

203.13 Future-day reporting and payment mechanisms.

203.14 Same-day reporting and payment mechanisms.

203.15 Electronic Federal Tax Payment System late fees.

203.16 Prohibited Automated Clearing House debits.

203.17 Appeal and dispute resolution.

Subpart C--Federal Tax Deposits

203.18 Scope of the subpart.

203.19 Tax deposits using Federal tax deposit coupons.

203.20 Note option.

203.21 Remittance option.

[[Page 51189]]

Subpart D--Investment Program and Collateral Security Requirements for

Treasury Tax and Loan Depositaries

203.22 Scope of the subpart.

203.23 Sources of balances.

203.24 Note balance.

203.25 Collateral security requirements.

Authority: 12 U.S.C. 90, 265-266, 332, 391, 1452(d), 1464(k),

1767, 1789a, 2013, 2122, and 3102; 26 U.S.C. 6302; 31 U.S.C. 321,

323 and 3301-3304.

Subpart A--General Information

Sec. 203.1 Scope.

The regulations in this part govern the processing of Federal tax

payments by financial institutions and the Federal Reserve Banks (FRB)

using electronic payment or paper methods; the designation of Treasury

tax and loan (TT&L) depositaries; and the operation of the Treasury

Department's (Treasury) investment program.

Sec. 203.2 Definitions.

As used in this part:

Advice of credit means the Treasury form (Standard Form 2284) used

in the Federal Tax Deposit (FTD) system which is supplied to

depositaries to use in summarizing and reporting deposits. Advice of

credit information also may be delivered electronically.

Automated Clearing House (ACH) credit entry means a transaction

originated by a financial institution in accordance with applicable ACH

association formats and applicable laws, regulations, and procedural

instructions.

Automated Clearing House (ACH) debit entry means a transaction

originated by Treasury's financial agent, in accordance with applicable

ACH association formats and applicable laws, regulations, and

instructions.

Business day means any day on which the FRB of the district is open

to the public.

Direct Access transaction means same-day Federal tax payment

information transmitted by a financial institution directly to the

Electronic Tax Application at a FRB using computer interface or the

Fedline Taxpayer Deposit Application.

Direct investment means placement of Treasury funds with a

depositary and a corresponding increase in a depositary's note balance.

Electronic Federal Tax Payment System (EFTPS) means that system

through which taxpayers remit Federal tax payments electronically.

Electronic Tax Application (ETA) means a subsystem of EFTPS that

receives, processes, and transmits Federal tax payment information for

taxpayers. ETA activity is comprised of Fedwire value transfers,

Fedwire non-value transactions, and Direct Access transactions.

Electronic Tax Application (ETA) reference number means the unique

number assigned to each ETA transaction by a FRB.

Federal funds rate means the Federal funds rate published weekly by

the Board of Governors of the Federal Reserve System.

Federal Reserve account means a reserve or clearing account held by

a financial institution with an FRB.

Federal Reserve Bank (FRB) head office local zone time (head office

LZT) means the local time of the FRB head office through which a

financial institution, or its authorized correspondent bank, sends a

same-day payment to an FRB.

Federal Reserve Bank of the district means the FRB that services

the geographical area in which the depositary is located, or such other

FRB that may be designated in an FRB operating circular.

Federal tax deposit (FTD) means a tax deposit made using an FTD

coupon.

Federal tax deposit coupon (FTD coupon) means a paper form (form

8109) supplied to a taxpayer by the Treasury for use in the FTD system

to accompany deposits of Federal taxes.

Federal Tax Deposit system (FTD system) means the paper-based

system in which taxpayers present an FTD coupon (form 8109) and payment

to a depositary or an FRB, which prepares an advice of credit listing

the FTDs.

Federal taxes means those Federal taxes or other payments specified

by the Secretary as eligible for payment through the procedures

prescribed in this part.

Fedwire means the funds transfer system owned and operated by the

FRBs.

Fedwire non-value transaction means the same-day Federal tax

payment information transmitted by a financial institution to an FRB

using a Fedwire type 1090 message to authorize a payment.

Fedwire value transfer means a Federal tax payment made by a

financial institution using a Fedwire entry.

Financial institution means any bank, savings bank, savings and

loan association, credit union, or similar institution.

Input Message Accountability Data (IMAD) means a unique number

assigned to each Fedwire transaction by the financial institution

sending the transaction to an FRB.

Note option means that program available to a depositary under

which Treasury invests in obligations of the depositary. The amount of

such investments will be evidenced by an open-ended interest-bearing

note balance maintained at the FRB of the district.

Procedural instructions are the procedures contained in the

Treasury Financial Manual, Volume IV (IV TFM). The FRBs may issue

operating circulars consistent with the regulations in this part.

Recognized insurance coverage means the insurance provided by the

Federal Deposit Insurance Corporation, the National Credit Union Share

Insurance Fund, or insurance organizations specifically qualified by

the Secretary.

Remittance option means that program available to a depositary that

processes FTD payments, under which the amount of deposits credited by

the depositary to the TT&L account will be withdrawn by the FRB for

deposit to the Treasury's General Account on the day that the FRB

receives the advices of credit supporting such deposits.

Same-day payment means the following ETA payment options: (1)

Direct Access transaction; (2) Fedwire non-value transaction; and (3)

Fedwire value transfer.

Secretary means the Secretary of the Treasury, or the Secretary's

delegate.

Special direct investment means the placement of Treasury funds

with a depositary and a corresponding increase in a depositary's note

balance, where the investment specifically is identified as a ``special

direct investment'' and may be secured by collateral retained in the

possession of the depositary pursuant to the terms of

Sec. 203.25(c)(2)(i).

Tax due date means the day on which a tax payment is due to

Treasury, as determined by statute and IRS regulations.

Transaction trace number means a unique number assigned by the

taxpayer's financial institution to each ACH credit transaction and by

Treasury's Financial Agent to each ACH debit transaction.

Treasury's Financial Agent (TFA) means a financial institution

designated as an agent of Treasury for processing EFTPS enrollments,

receiving EFTPS tax payment information, and originating ACH debit

entries on behalf of Treasury.

Treasury's General Account (TGA) means an account maintained in the

name of the United States Treasury at an FRB.

Treasury tax and loan (TT&L) account means the Treasury account

maintained by a depositary in which funds are credited by the

depositary after receiving and collateralizing FTDs.

[[Page 51190]]

Treasury tax and loan depositary (depositary) means a financial

institution designated as a depositary by the FRB of the district for

the purpose of maintaining a TT&L account and/or note balance.

Treasury tax & loan (TT&L) rate of interest means the Federal funds

rate less twenty-five basis points (i.e., 1/4 of 1 percent).

Sec. 203.3 Financial institution eligibility for designation as a

Treasury tax and loan depositary.

(a) To be designated as a TT&L depositary, a financial institution

must be an FRB, or insured as a national banking association, state

bank, savings bank, savings and loan, building and loan, homestead

association, Federal home loan bank, credit union, trust company, or a

U.S. branch of a foreign banking corporation, the establishment of

which has been approved by the Comptroller of the Currency.

(b) A financial institution shall possess the authority to pledge

collateral to secure TT&L account balances and/or a note balance.

(c) In order to be designated as a TT&L depositary for the purposes

of processing tax deposits in the FTD system, a financial institution

shall possess under its charter either general or specific authority

permitting the maintenance of the TT&L account, the balance of which is

payable on demand without previous notice of intended withdrawal and

either general or specific authority permitting the maintenance of a

note balance, which is payable on demand without previous notice of

intended withdrawal.

Sec. 203.4 Designation of financial institutions as Treasury tax and

loan depositaries.

(a) Application procedures. An eligible financial institution

seeking designation as a depositary and, thereby, the authority to

maintain a TT&L account and/or a note balance shall file with the FRB

Financial Management Service Form 458 ``Financial Institution Agreement

and Application for Designation as a TT&L depositary,'' and Financial

Management Service Form 459, ``Resolutions Authorizing the Financial

Institution Agreement and Application for Designation as a TT&L

depositary,'' certified by its board of directors. Financial Management

Service Forms 458 and 459 are available upon request from the FRB.

(b) Designation. Each financial institution satisfying the

eligibility requirements and the application procedures will receive

from the FRB notification of its specific designation as a TT&L

depositary. A financial institution is not authorized to maintain a

TT&L account or note balance until it has been designated as a TT&L

depositary by the FRB. Depositaries processing tax payments in the FTD

System are required to elect either the remittance or the note option.

Sec. 203.5 Parties to the agreement.

To be designated as a TT&L depositary, a financial institution

shall enter into a depositary agreement with Treasury's fiscal agent,

the FRB. By entering into this agreement, the financial institution

agrees to be bound by this part, and instructions issued pursuant to

this part.

Sec. 203.6 Obligations of the depositary.

A depositary shall:

(a) Administer a note balance, if not participating in the FTD

System.

(b) Administer a TT&L account and, if applicable, a note balance,

if participating in the FTD System.

(c) Comply with the requirements of Section 202 of Executive Order

11246, entitled ``Equal Employment Opportunity'' as amended by

Executive Orders 11375 and 12086, and the regulations issued thereunder

at 41 CFR Chapter 60.

(d) Comply with the requirements of Section 503 of the

Rehabilitation Act of 1973, as amended, and the regulations issued

thereunder at 41 CFR part 60-741, requiring Government contractors to

take affirmative action to employ and advance in employment qualified

individuals with disabilities.

(e) Comply with the requirements of Section 503 of the Vietnam Era

Veterans' Readjustment Assistance Act of 1972, as amended, 38 U.S.C.

4212, Executive Order 11701, and the regulations issued thereunder at

41 CFR parts 60-250 and 61-250 requiring contractors to take

affirmative action to employ and advance in employment qualified

special disabled veterans and Vietnam Era veterans.

Sec. 203.7 Compensation for services.

Except as provided in the procedural instructions, Treasury will

notcompensate financial institutions for servicing and maintaining the

TT&L account, or for processing tax payments.

Sec. 203.8 Termination of agreement or change of election or option.

(a) Termination by Treasury. The Secretary may terminate the

agreement of a depositary at any time upon notice to that effect to

that depositary, effective on the date set forth in the notice.

(b) Termination or change of election or option by the depositary.

A depositary may terminate its depositary agreement, or change its

option or election, consistent with this part, by submitting notice to

that effect in writing to the FRB effective at a prospective date set

forth in the notice.

Sec. 203.9 Additional instructions.

Procedural instructions on this part are found in the Treasury

Financial Manual, Volume IV (IV TFM). In addition, each FRB may issue

operating circulars and other instructions not inconsistent with this

part or the Treasury Financial Manual, governing the handling of tax

payments and TT&L accounts, and containing such provisions as are

required or permitted by this part. These instructions and the terms of

this part shall be binding on financial institutions that process tax

payments and/or maintain a TT&L account or note balance under this

part. By accepting or originating Federal tax payments, the financial

institution agrees to be bound by this part, and instructions issued

pursuant to this part.

Subpart B--Electronic Federal Tax Payments.

Sec. 203.10 Scope of the subpart.

This subpart prescribes the rules by which financial institutions

shall process Federal tax payment transactions electronically.

Sec. 203.11 Enrollment.

(a) General. Taxpayers shall complete an enrollment process with

the TFA prior to making their first electronic Federal tax payment.

Taxpayers may enroll using either a paper-based or an electronic

method.

(b) Types of enrollment. (1) Paper. The TFA shall provide financial

institutions and taxpayers with enrollment forms upon request. The

taxpayer is responsible for completing the enrollment form, obtaining

the required financial institution verification and signature, and

returning the enrollment form to the TFA.

(2) Electronic. A financial institution may choose to assist its

customers with the enrollment process by offering electronic

enrollment. If a financial institution chooses to offer electronic

enrollment, the financial institution shall follow the procedural

instructions and the instructions provided by the TFA. An authorized

financial institution representative shall verify and sign the

enrollment form and provide a paper copy of the completed enrollment

form to the taxpayer for submission to the TFA.

(c) Verification. If the taxpayer elects the ACH debit entry method

of paying

[[Page 51191]]

taxes, either through the paper or electronic enrollment process, an

authorized representative of the financial institution shall verify the

accuracy of the financial institution routing number, taxpayer account

number, and taxpayer account type. The authorized financial institution

representative shall sign the enrollment form attesting to the accuracy

of the financial institution information.

Sec. 203.12 Electronic payment methods.

(a) General. Electronic payment methods for Federal tax payments

available under this subpart include ACH credit entries, ACH debit

entries, and same-day payments. Any financial institution that is

capable of originating and/or receiving transactions for these payment

methods by itself or through a correspondent, may do so on behalf of a

taxpayer.

(b) Conditions to making an electronic payment. Nothing contained

in this part shall affect the authority of financial institutions to

enter into contracts with their customers regarding the terms and

conditions for processing payments, provided that such terms and

conditions are not inconsistent with this subpart and applicable law

governing the particular transaction type.

(c) Payment of interest for time value of funds held. Treasury will

not pay interest on any payments erroneously paid to Treasury and

subsequently refunded to the financial institution.

Sec. 203.13 Future-day reporting and payment mechanisms.

(a) General. A financial institution may receive an ACH debit

entry, originated by the TFA at the direction of the taxpayer; or, a

financial institution may originate an ACH credit entry, at the

direction of the taxpayer. Taxpayers will be credited for the actual

amount received by Treasury. Treasury will not credit taxpayers for any

amount deducted for system charges.

(b) ACH debit. A financial institution receiving an ACH debit entry

originated by the TFA shall, as applicable:

(1) Timely verify the information contained in the ACH

prenotification entry;

(2) Timely return to the FRB or other ACH processor a

prenotification entry that contains an invalid account number or is

otherwise erroneous or unprocessable;

(3) Properly notify the TFA of incorrect information on entries

received, using a Notification of Change entry; and

(4) Timely return an entry not posted, e.g., a return or a

contested dishonored return for acceptable return reasons, as set forth

in the procedural instructions.

(c) ACH credit. A financial institution originating an ACH credit

entry at the direction of a taxpayer, by itself or through a

correspondent, shall:

(1) Originate an ACH prenotification that may be in the form of a

zero dollar ACH entry. The originator may initiate an ACH credit entry

no earlier than 10 calendar days after the date the prenotification was

transmitted to an FRB or other ACH processor;

(2) Format the ACH credit entry in the ACH format approved by

Treasury for Federal tax payments;

(3) Originate and deliver an ACH credit entry to the FRB or other

ACH processor by the deadline, as specified by the FRB or Treasury,

whichever is earlier, in order to meet the tax due date specified by

the taxpayer;

(4) Provide the taxpayer, upon request, a transaction trace number;

(5) Process all ACH entries received from the FRB or other ACH

processor on a timely basis.

(d) ACH credit corrections. Correction of ACH credit entries must

be approved in advance by the IRS. The financial institution will find

procedures for requesting corrections in the procedural instructions.

Once approval is received, corrections will be processed by the TFA.

Sec. 203.14 Same-day reporting and payment mechanisms.

(a) General. A financial institution or its authorized

correspondent may initiate same-day reporting and payment transactions

on behalf of taxpayers. A same-day payment must be received by the FRB

by 2:00 p.m., FRB head office LZT. Taxpayers will be credited for the

actual amount received by Treasury. Treasury will not credit taxpayers

for any amount deducted for system charges.

(b) Fedwire Value transfer. To initiate a Fedwire value tax

payment, the financial institution shall be a Fedwire participant and

shall comply with the FRB's Fedwire format for tax payments. The

taxpayer's financial institution shall provide, upon request by the

taxpayer, the IMAD and the ETA reference numbers for a Fedwire value

transfer. The financial institution may obtain the ETA reference number

for Fedwire value transfers from its FRB by supplying the related IMAD

number. Fedwire value transfers settle immediately to the TGA and thus

are not credited to a depositary's note balance.

(c) Fedwire non-value transaction. To initiate a Fedwire non-value

tax payment, the financial institution shall be a Fedwire participant

and shall comply with the FRB's Fedwire format for tax payments. The

taxpayer's financial institution shall provide the taxpayer, upon

request, the IMAD and ETA reference number for the Fedwire non-value

transaction. The financial institution may obtain the ETA reference

number for Fedwire non-value transactions from its FRB by supplying the

related IMAD number.

(1) For a note option depositary, tax payments made using the

Fedwire non-value method will be credited to the depositary's note

balance.

(2) For a financial institution that is not a note option

depositary, tax payments made using the Fedwire non-value method will

be debited from the financial institution's Federal Reserve account and

credited to the TGA on the day of the transaction. By initiating a

Fedwire non-value transaction, a financial institution authorizes the

FRB to debit its Federal Reserve account in the amount of the tax

payment specified in the transaction.

(d) Direct Access transaction. By initiating a Direct Access

transaction, a financial institution authorizes the FRB to debit its

Federal Reserve account or the Federal Reserve account of its

designated correspondent in the amount of the tax payment specified in

the transaction. The taxpayer's financial institution shall provide,

upon request of the taxpayer, the ETA reference number for a Direct

Access transaction.

(1) For a note option depositary, tax payments made using Direct

Access will be credited to the depositary's note balance.

(2) For a financial institution that is not a note option

depositary, tax payments made using Direct Access will be debited from

the financial institution's Federal Reserve account, or the Federal

Reserve account of its designated correspondent, and credited to the

TGA on the day of the transaction.

(e) Cancellations and reversals. The FRB may reverse a same-day

transaction:

(1) If the transaction:

(i) Is originated by a financial institution after 2:00 p.m. FRB

head office LZT;

(ii) Has an unenrolled taxpayer identification number;

(iii) Does not meet the edit and format requirements set forth in

the procedural instructions;

(2) At the direction of the IRS, for the following reasons:

(i) Incorrect taxpayer name;

(ii) Overpayment;

(iii) Unidentified payment; or,

(3) At the request of the financial institution that sent the same-

day transaction, if the request is made prior

[[Page 51192]]

to 2:00 p.m. FRB head office LZT on the day the payment was made.

(f) Other than as stated in paragraph (e) of this section, Treasury

is not obligated to reverse all or any part of a payment.

Sec. 203.15 Electronic Federal Tax Payment System late fees.

(a) Circumstances subject to late fees. Treasury may assess a late

fee on a financial institution in instances where a taxpayer that

failed to meet a tax due date proves to the IRS that the delivery of

tax payment instructions to the financial institution was timely and

that the taxpayer satisfied the conditions imposed by the financial

institution pursuant to Sec. 203.12(b).

(b) Calculation of late fees. Any late fee assessed under this

section shall be in the form of interest at the TT&L rate. The late fee

will be assessed from the day the taxpayer specified that its payment

should settle to Treasury until the receipt of the payment by Treasury.

(c) Authorization to assess late fees. A financial institution that

processes Federal tax payments made by electronic payment methods under

this subpart is deemed to authorize the FRB to debit its Federal

Reserve account or the account of its designated correspondent for any

late fee assessed under this section. Upon the direction of Treasury,

the FRB shall debit the Federal Reserve account of the financial

institution or the account of its designated correspondent for the

amount of the late fee.

(d) Circumstances not subject to late fees. Treasury will not

assess a late fee on a taxpayer's financial institution if a taxpayer

fails to meet a tax due date because the taxpayer has not satisfied

conditions imposed by the financial institution pursuant to

Sec. 203.12(b). The burden is on the financial institution to establish

the taxpayer has not satisfied the conditions.

Sec. 203.16 Prohibited Automated Clearing House debits.

(a) General. The Treasury has instituted operational safeguards to

scrutinize all debit entries sent to the Treasury. In the unlikely

event an unauthorized debit entry is posted to the TGA, this section

sets forth the liability of financial institutions originating such

debits. Accordingly, a financial institution shall not originate an ACH

debit to the TGA without the prior written permission of Treasury.

(b) Liability. A financial institution that originates an

unauthorized ACH debit entry that is posted to the TGA shall be liable

to Treasury for the amount of the transaction and shall be liable for

interest charges as specified in paragraph (d) of this section.

(c) Authorization to recover principal and assess interest charge.

By initiating an unauthorized ACH debit entry, a financial institution

is deemed to authorize the FRB to debit its Federal Reserve account or

the account of its designated correspondent for any principal and, if

applicable, interest charge assessed by Treasury under this section.

(d) Interest charge calculation. The interest charge shall be at a

rate equal to the Federal funds rate plus two percent. The interest

charge shall be assessed for each calendar day, from the day the TGA

was debited to the day the TGA is recredited with the full amount due.

Sec. 203.17 Appeal and dispute resolution.

(a) Appeal. A financial institution may appeal any late fee or

interest charge assessed under either Sec. 203.15 or Sec. 203.16. An

appeal must be received, in writing, by the Treasury officer identified

in the procedural instructions, no later than 90 calendar days after

the date of the charge. The financial institution shall submit

information supporting its position and the relief sought.

(b) Decision. Treasury will decide to: uphold the fee or charge;

reverse the fee or charge; or mandate another action. Treasury's

decision will be final.

(c) Recoveries. In the event of an over or under recovery of late

fees or interest charges, Treasury will reimburse, or instruct the FRB

to credit or debit the Federal Reserve account of the financial

institution or its designated correspondent, as appropriate.

Subpart C--Federal Tax Deposits

Sec. 203.18 Scope of the subpart.

This subpart applies to all depositaries that accept FTD coupons

and governs the acceptance and processing of those coupons.

Sec. 203.19 Tax deposits using Federal tax deposit coupons.

(a) FTD coupons. A depositary that accepts FTD coupons shall,

through any of its offices that accept demand and/or savings deposits:

(1) Accept from a taxpayer, cash, a postal money order drawn to the

order of the depositary, or a check or draft drawn on and to the order

of the depositary, covering an amount to be deposited as Federal taxes

when accompanied by an FTD coupon on which the amount of the deposit

has been properly entered in the space provided. A depositary may

accept, at its discretion, a check drawn on another financial

institution, but it does so at its option and absorbs for its own

account any float and other costs involved.

(2) Issue a counter receipt when requested to do so by a taxpayer

that makes an FTD deposit over the counter.

(3) Place a stamp impression on the face of each FTD coupon in the

space provided. The stamp shall reflect the date on which the tax

deposit was received and the name and location of the depositary. The

timeliness of the tax payment will be determined by reference to the

date stamped by the depositary on the FTD coupon.

(4) Credit, on the date of receipt, all FTD deposits to the TT&L

account and administer that account pursuant to the provisions of this

part.

(5) Forward, each day, to the IRS Center servicing the geographical

area in which the depositary is located, the FTD coupons for all FTD

deposits received that day. The FTD coupons shall be accompanied by an

advice of credit reflecting the total amount of all FTD coupons.

(6) Establish an adequate record of all FTD deposits prior to

transmittal to the IRS Center so that the depositary will be able to

identify deposits in the event tax deposit coupons are lost in

shipment. For tracking purposes, a record shall be made of each FTD

deposit showing, at a minimum, the date of deposit, the taxpayer

identification number, and the amount of the deposit. The depositary's

copy of the advice of credit may be used to provide the necessary

information if individual deposits are listed separately, showing date,

taxpayer identification number, and amount.

(7) Deliver its advices of credit to the FRB by the cutoff hour

designated by the FRB for receipt of advices.

(8) Not accept compensation from taxpayers for accepting deposits

of Federal taxes and handling them as required by this section.

(b) FTD deposits with Federal Reserve Banks. An FRB shall:

(1) Accept an FTD deposit directly from a taxpayer when such tax

deposit is:

(i) Mailed or delivered by a taxpayer; and

(ii) Provided in the form of cash or a check or postal money order

payable to the order of that FRB: and,

(iii) Accompanied by an FTD coupon on which the amount of the tax

deposit has been properly entered in the space provided.

(2) Issue a counter receipt, when requested to do so by a taxpayer

that makes an FTD deposit over the counter; and,

(3) Place, in the space provided on the face of each FTD coupon

accepted

[[Page 51193]]

directly from a taxpayer, a stamp impression reflecting the name of the

FRB and the date on which the tax deposit will be credited to the TGA.

Timeliness of the Federal tax payment will be determined by this date.

However, if such a deposit is mailed to an FRB, it shall be subject to

the ``Timely mailing treated as timely filing and paying'' clause of

the Internal Revenue Code (26 U.S.C. 7502); and,

(4) Credit the TGA with the amount of the tax payment;

(i) On the date the payment is received, if payment is made in

cash; or,

(ii) On the date the proceeds of the tax payment are collected, if

payment is made by postal money order or check.

Sec. 203.20 Note option.

(a) Late delivery of advices of credit. If an advice of credit does

not arrive at the FRB before the designated cutoff hour for receipt of

such advices, the FRB will post the funds to the note balance as of the

next business day after the date on the advice of credit. This is the

date on which funds will begin to earn interest for Treasury.

(b) Transfer of funds from TT&L account to the note balance. For a

depositary selecting the note option, funds equivalent to the amount of

deposits credited by a depositary to the TT&L account shall be

withdrawn by the depositary and credited to the note balance on the

business day following the receipt of the tax payment.

Sec. 203.21 Remittance option.

(a) FTD late fee. If an advice of credit does not arrive at the FRB

before the designated cutoff hour for receipt of such advices, an FTD

late fee in the form of interest at the TT&L rate will be assessed for

each day's delay in receipt of such advice. Upon the direction of

Treasury, the FRB shall debit the Federal Reserve account of the

financial institution or the account of its designated correspondent

for the amount of the late fee.

(b) Withdrawals. For a depositary selecting the Remittance Option,

the amount of deposits credited by a depositary to the TT&L account

will be withdrawn upon receipt by the FRB of the advices of credit. The

FRB will charge the depositary's Federal Reserve account or the account

of the depositary's designated correspondent.

Subpart D--Investment Program and Collateral Security Requirements

for Treasury Tax and Loan Depositaries

Sec. 203.22 Scope of the subpart.

This subpart provides rules for TT&L depositaries on crediting note

balances under the various payment methods; debiting note balances; and

pledging collateral security.

Sec. 203.23 Sources of balances.

Depositaries electing to participate in the investment program can

receive Treasury's investments in obligations of the depositary from

the following sources:

(a) FTD deposits that have been credited to the TT&L account

pursuant to subpart C of this part;

(b) EFTPS ACH credit and ACH debit transactions, Fedwire non-value

transactions, and Direct Access transactions pursuant to subpart B of

this part; and

(c) Direct investments and special direct investments pursuant to

subpart D of this part.

Sec. 203.24 Note balance.

(a) Additions. Treasury will invest funds in obligations of

depositaries selecting the note option. Such obligations shall be in

the form of open-ended, interest-bearing notes; and additions and

reductions will be reflected on the books of the FRB of the district.

(1) FTD system. A depositary processing tax deposits using the FTD

system and electing the note option shall debit the TT&L account and

credit its note balance as stated in 203.20(b).

(2) EFTPS. (i) ACH credit and ACH debit. A note option depositary

processing EFTPS ACH debit entries and/or ACH credit entries shall

credit its note balance for the value of the transactions on the

settlement day. Financial institutions may refer to the procedural

instructions for information on how to ascertain the amount of the

credit to the note balance;

(ii) Fedwire non-value and Direct Access. A note option depositary

processing Fedwire non-value and/or Direct Access transactions pursuant

to subpart B of this part shall credit its note balance and debit its

customer's account for the value of the transactions on the transaction

date.

(b) Other additions. Other funds from Treasury may be offered from

time to time to certain note option depositaries through direct

investments, special direct investments or other investment programs.

(c) Note balance withdrawals. The amount of the note balance shall

be payable on demand without previous notice. Calls for payment on the

note will be by direction of the Secretary through the FRBs. On behalf

of Treasury, the FRB shall charge the reserve account of the depositary

or the depositary's designated correspondent on the day specified in

the call for payment.

(d) Interest. A note shall bear interest at the TT&L rate. Such

interest is payable monthly by a charge to the Federal Reserve account

of the depositary or its designated correspondent.

(e) Maximum balance.

(1) Note depositaries. A depositary selecting the note option shall

establish a maximum balance for its note by providing notice to that

effect in writing to the FRB. The maximum balance is the amount of

funds for which a note option depositary is willing to provide

collateral in accordance with Sec. 203.25(c)(1). That portion of any

advice of credit or EFTPS tax payment, which, when posted at the FRB,

would cause the note balance to exceed the maximum balance amount

specified by the depositary, will be withdrawn by the FRB that day.

(2) Direct investment depositaries. A note depositary that

participates in the direct investment program will set a maximum

balance for direct investment purposes which is higher than its peak

balance normally generated by the depositary's advices of credit and

EFTPS tax payment inflow.

(3) Special direct investment depositaries. Special direct

investments, while credited to the note balance, shall not be

considered in setting the amount of the maximum balance or in

determining the amounts to be withdrawn where a depositary's maximum

balance is exceeded.

Sec. 203.25 Collateral security requirements.

Financial institutions that process EFTPS tax payments, but are not

TT&L depositaries, have no collateral requirements under this part.

Financial institutions that are note option depositaries or remittance

option depositaries have collateral security requirements, as follows:

(a) Note option. (1) FTD deposits and EFTPS tax payments. A

depositary shall pledge collateral security in accordance with the

requirements of paragraphs (c)(1), (d), and (e) of this section in an

amount that is sufficient to cover the pre-established maximum balance

for the note, and, if applicable, the closing balance in the TT&L

account which exceeds recognized insurance coverage. Depositaries shall

pledge collateral for the full amount of the maximum balance at the

time the maximum balance is established. If the depositary maintains a

TT&L account, the depositary shall pledge collateral security before

crediting deposits to the TT&L account.

[[Page 51194]]

(2) Direct investments. A note option depositary that participates

in Treasury's direct investment program is not required to pledge

collateral continuously in the amount of the pre-established maximum

balance. However, each direct investment depositary shall pledge, no

later than the day the direct investment is placed, the additional

collateral in accordance with paragraphs (c)(1), (d), and (e) of this

section to cover the total note balance including those funds received

through the direct investment program. If a direct investment

depositary has a history of frequent collateral deficiencies, it shall

fully collateralize its maximum balance at all times.

(3) Special direct investments. Before special direct investments

are credited to a depositary's note balance, the note option depositary

shall pledge collateral security in accordance with the requirements of

paragraphs (c)(2) and (e) of this section, to cover 100 percent of the

amount of the special direct investments to be received.

(b) Remittance option. Prior to crediting FTD deposits to the TT&L

account, a remittance option depositary shall pledge collateral

security in accordance with the requirements of paragraph (c)(1), (d),

and (e) of this section in an amount which is sufficient to cover the

balance in the tax and loan account at the close of business each day,

less recognized insurance coverage.

(c) Deposits of securities. (1) Collateral security required under

paragraphs (a)(1), (2), and (b) of this section shall be deposited with

the FRB of the district, or with a custodian or custodians within the

United States designated by the FRB, under terms and conditions

prescribed by the FRB.

(2)(i) Collateral security required under paragraph (a)(3) of this

section shall be pledged under a written security agreement on a form

provided by the FRB of the district. The collateral security pledged to

satisfy the requirements of paragraph (a)(3) of this section may remain

in the pledging depositary's possession and the fact that it has been

pledged shall be evidenced by advices of custody to be incorporated by

reference in the written security agreement. The written security

agreement and all advices of custody covering collateral security

pledged under that agreement shall be provided by the depositary to the

FRB of the district. Collateral security pledged under the agreement

shall not be substituted for or released without the advance written

approval of the FRB of the district, and any collateral security

subject to the security agreement shall remain so subject until an

approved substitution is made. No substitution or release shall be

approved until an advice of custody containing the description required

by the written security agreement is received by the FRB of the

district.

(ii) Treasury's security interest in collateral security pledged by

a depositary in accordance with paragraph (c)(2)(i) of this section to

secure special direct investments is perfected without Treasury taking

possession of the collateral security for a period not to exceed 21

days from the day of the depositary's receipt of the special direct

investment.

(d) Acceptable securities. Unless otherwise specified by the

Secretary, collateral security pledged under this section may be

transferable securities, owned by the depositary free and clear of all

liens, charges, or claims, of any of the classes listed in the

procedural instructions. Collateral will be accepted at values assigned

by the FRB of the district.

(e) Assignment of securities. A TT&L depositary that pledges

acceptable securities which are not negotiable without its endorsement

or assignment may furnish, in lieu of placing its unqualified

endorsement on each security, an appropriate resolution and irrevocable

power of attorney authorizing the FRB to assign the securities. The

resolution and power of attorney shall conform to such terms and

conditions as the FRB shall prescribe.

(f) Effecting payments of principal and interest on securities

pledged as collateral. (1) General. If the depositary fails to pay,

when due, the whole or any part of the funds received by it for credit

to the TT&L account, and/or if applicable, its note balance; or

otherwise violates or fails to perform any of the terms of this part,

or fails to pay when due amounts owed to the United States or the

United States Treasury; or if the depositary is closed for business by

regulatory action or by proper corporate action, or in the event that a

receiver, conservator, liquidator or any other officer is appointed;

then the Treasury, without notice or demand, may sell, or otherwise

collect the proceeds of all or part of the collateral, including

additions and substitutions; and apply the proceeds, to satisfy any

claims of the United States against the depositary. All principal and

interest payments on any security pledged to protect the note balance

(if applicable) and/or the TT&L account (if applicable), due as of the

date of the insolvency or closure, or thereafter becoming due, shall be

held separate and apart from any other assets and shall constitute a

part of the pledged security available to satisfy any claim of the

United States.

(2) Payment procedures. (i) Subject to the waiver in paragraph

(f)(2)(iii) of this section, each depositary (including, with respect

to such depositary, an assignee for the benefit of creditors, a trustee

in bankruptcy, or a receiver in equity) shall immediately remit each

payment of principal and/or interest received by it with respect to

collateral pledged pursuant to this section to the FRB of the district,

as fiscal agent of the United States, and in any event shall so remit

no later than 10 days after receipt of such a payment.

(ii) Subject to the waiver in paragraph (f)(2)(iii) of this

section, each obligor on a security pledged by a depositary pursuant to

this section shall make each payment of principal and/or interest due

with respect to such security directly to the FRB of the district, as

fiscal agent of the United States.

(iii) The requirements of paragraphs (f)(2)(i) and (ii) of this

section are hereby waived for only so long as a pledging depositary

avoids both termination from the program under Sec. 203.8; and also,

those circumstances identified in paragraph (f)(1) which may lead to

the collection of the proceeds of collateral or the waiver is otherwise

terminated by Treasury.

Dated: September 25, 1996.

Russell D. Morris,

Commissioner.

[FR Doc. 96-24949 Filed 9-27-96; 8:45 am]

BILLING CODE 4810-35-P