The Tax Attic — by Jerry Coon — August 26, 2010

Business federal tax rules revised 

The Internal Revenue Service is keeping busy this summer. In a previous article, I discussed various court cases that involved the IRS and taxpayers. Auditing taxpayers is one way the IRS keeps busy. Those audits from time to time develop into court cases.

Jerry Coon, Enrolled Agent

Another manner of staying busy is by revising the various rules under which businesses operate. They recently issued Proposed Regulation Number 153340-09 that revises, effective January 1, 2011, how businesses deposit and pay federal taxes.

Currently, businesses have four choices to pay federal taxes. First, they can take a paper coupon, a Form 8109, and a check to a federal bank. The bank processes the check and scans in the coupon. The money and the coupon are then forwarded to the IRS.

Unfortunately, errors occur in this system. Taxpayers complete the Form 8109 by hand, writing in the amount of the check and filling in a box that indicates the type of tax being paid. Anytime anyone handwrites anything, there are opportunities for error. Most people are dyslexic to some extent, and it’s very easy to write a check for $1,019.25 and enter $1,109.25 in the Form 8109 amount box. It’s also very easy to fill in the wrong box indicating the type of tax to be paid. Making either one of these errors causes all types of problems at a later time when the IRS tries to match the tax paid with the amount paid and type of tax paid on the coupon. It can and is a real mess.

Second, the business can mail the Form 8109 and a check directly to a federal reserve bank. That brings a whole new set of problems into play. It’s called the United States Post Office. In this area, we mail our checks and coupons to the Federal Reserve bank located in St. Louis, Mo. If a tax payment is due on the 15th of the month, how many days before the 15th must the check and coupon be mailed for it to make it to St. Louis by the 15th? It should be three or four days, but it could be eight or nine days. It’s better to be safe than sorry. I know the Post Office doesn’t lose many items, but it does happen once in a while. Again, there are opportunities for errors.

Third, the tax deposit can be made via the Electronic Federal Tax Payment System (EFTPS). This is the preferred option.

Fourth, if the balance due on a tax form is a minimal amount, that amount can be submitted with the tax form.

Per the proposed regulations, options one and two are obsolete as of January 1, 2011. Actually, option one, the paper coupon and check, was on its way out before Proposed Regulation Number 153340-09 was issued. Many banks had already announced that effective January 1, 2011, they would no longer be processing paper coupons.

Option two would also be obsolete at the same time. If a bank can’t accept a paper coupon, it stands to reason that a federal reserve bank would not be accepting paper coupons either.

That leaves options three and four as ways to pay federal taxes.

Option three, using EFTPS, is the preferred manner of paying taxes. In the EFTPS system, the business utilizes either a computer or telephone to initiate a tax payment. Payments can be made 24 hours a day, seven days a week. Payments can be scheduled up to 120 days in advance of the actual payment date. There are no paper coupons to make transposition errors. There is no check to get lost in the mail. Taxpayers enter the amount to be paid in their computer, the type of tax to be paid, and the date the payment is to be made. An acknowledgement can be printed before the payment is finalized just to make sure everything is correct.

Businesses can enroll in EFTPS by going to www.eftps.gov or by calling EFTPS Customer Service at 1-800-555-4477. It’s convenient and is the way of the future.

Option four is the final way to pay federal taxes. If the amount due is a minimal amount, the taxpayer can pay the balance due when mailing the return.

The proposed regulation has all of the rules laid out in fairly understandable language. The bottom line is that the IRS wants us all to use the EFTPS system. I can see why they want that to happen, because it does cut down on errors. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns

Action Tax Service in Rockford. Contact Jerry at www.actiontaxservice.com.

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