Treasury’s electronic payment system gets ready for the Web


The system that seamlessly pours $5 billion in taxes into Treasury Department coffers every day will soon enter the Web era.

The Electronic Federal Tax Payment System will add Web payments to existing telephone and client-server methods of revenue collection.

EFTPS Online, now in the pilot stage, should be ready for production use at the end of September, said Jack McGuire, director of collections modernization in Treasury’s Financial Management Service.

Since its first dollar arrived on Nov. 7, 1996, EFTPS has been collecting taxes via push-button telephone and client software. During fiscal 2000, the system conveyed $1.5 trillion in tax dollars from businesses to the government. All businesses that pay more than $200,000 in annual federal taxes—employee withholding, corporate taxes or any other combination of taxes—must use EFTPS.

Many other businesses use EFTPS even though they’re not required to do so, McGuire said. For example, accountants who submit taxes for their customers use the EFTPS client software for up to 99 taxpayers in one transaction.

Thirteen large payroll-processing corporations, which serve vast numbers of U.S. companies, have dedicated, encrypted links to EFTPS. These so-called bulk filers send in about half of the revenue collected through EFTPS, said Larry Faulkner, director of electronic payments at the IRS Office of Electronic Tax Administration.

It’s important to distinguish EFTPS from the IRS’ electronic-filing program for tax forms. “This is actual payments we’re talking about,” McGuire said, rather than tax forms.

EFTPS routes money from taxpayers’ bank accounts to Treasury accounts at Federal Reserve Banks using commercial banks as contractors. EFTPS users in about half the states route their tax payments through Bank of America of Charlotte, N.C. The other half pay through a partnership of Bank One Corp. of Chicago and Firstar Corp. of Milwaukee.

Banks subcontract

In turn, the banks employ subcontractors to run the electronic systems. Bank of America uses govONE Solutions LP of Englewood, Colo., and Bank One and Firstar jointly own their subcontractor, Anexsys LLC of Chicago.

FMS’ Jack McGuire says he expects the Web tax payment system to be in production by the end of September.
Treasury does not charge taxpayers for using EFTPS, McGuire said. The government pays its designated financial agents, Bank of America and Bank One, to cover the costs of operating EFTPS.

Some taxpayers, however, might be charged commercial transaction fees for initiating EFTPS payments through the Federal Reserve’s Fedwire transfer service or the Automated Clearing House used by financial institutions, McGuire said.

Overnight, all data about the payments sent to Treasury in the past 24 hours is downloaded to an IRS service center in Memphis, Tenn., Faulkner said.

EFTPS participants enroll by filling out a form and giving Treasury their bank account information. Each receives an identification number by postal mail.

EFTPS Online will be “another method for getting information to the federal government so that taxes are collected on the day they’re due,” McGuire said. It will also improve accessibility for individual taxpayers, who today make up a tiny fraction of the EFTPS clientele.

Security concerns

Right now, 3.4 million businesses and 10,985 individuals are registered to use EFTPS, FMS spokeswoman Melody Barrett said. During March, 1.84 million taxpayers used the system.

Gary Grippo says FMS is not using digital certificates for online tax payments but is prepared to do so.
Work on EFTPS Online started about three years ago. “We decided to build an Internet site simply because that’s the way the world’s working,” the IRS’ Faulkner said.

Security was an intense concern, and an IRS security group participated in the initial testing, McGuire said.

To exceed commercial best practices, said Gary Grippo, the agency’s chief architect for electronic commerce, the group tried to imagine every conceivable threat and design prevention, detection and containment responses.

The pilot online application, whose private uniform resource locator is given only to invited businesses, went live in two stages, one last November and the other in February.

About 3,000 businesses are taking part. “They’ve given us great feedback, and the changes they required were relatively minor,” Faulkner said.

As of April 4, the pilot EFTPS Online had collected 18,479 payments totaling $643 million, McGuire said.

Once it goes into production, prospective users can enroll from a Web form. Online users will need two personal identification numbers, one for the main system and one Internet password.

EFTPS Online can accommodate electronic signatures and digital certificates, but FMS is not using those security options at this point, Grippo said.

Treasury is simply planning ahead in case the technology is mandated.

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