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U.S. Treasury Adopts Open Source Strategy to Drive Electronic Tax Payments

A free, real-time Web services interface for the Department of the Treasury's Electronic Federal Tax Payment System promises operational cost savings for banks.

These days one might think the U.S. Department of the Treasury does nothing but try to stabilize troubled financial institutions. In fact, behind the headlines, an innovative initiative based on open source principles not only is helping the government agency work toward its goal of becoming a paperless organization, but also has the potential to help banks cut costs and build stronger relationships with business customers.

As of Jan. 1, 2009, the Department of the Treasury's Financial Management Service (FMS; Washington, D.C.) completed and published the full specification for a free, real-time Web services interface for its Electronic Federal Tax Payment System (EFTPS). This EFTPS service, which was launched in 1996, enables taxpayers (mainly business taxpayers) to pay their federal taxes electronically online or over the phone, instead of standing in a teller line. Starting in 2007, the Web services interface has been tested in a pilot with Intuit's QuickBooks Payroll product. In the pilot's first six months, more than 124,000 payments totaling $375 million were received through the Intuit interface.

By publishing the interface specs -- with expanded capabilities that include enrollment and account maintenance functions -- FMS hopes to enable financial institutions to reduce the number of paper Federal Tax Deposit (FTD) coupons businesses use to make employment tax deposits. Currently more than 80 percent of all federal tax dollars are collected through EFTPS (more than $2.1 trillion in 2007).

"Our technology strategy [is] identical to what our banking partners in the private sector have been aligned to [for the] past 25 years: increasing efficiency as much as possible," says Mark Stevens, director, Tax Collection Division, Financial Management Service, U.S. Department of the Treasury. "My division is responsible for the collection of federal tax revenue, [and to] drive as many collections as possible to electronic. Treasury's strategic goal is to become an all-electronic Treasury, and move away from paper."

There are three main channels that have been managed by Treasury's Tax Collection Division, whose main function "is to act as the cash manager for the federal government. We have a network of partners, including the Federal Reserve banks and financial institutions, to manage the government's money," explains Stevens. EFTPS is "by far our largest [channel], in terms of dollars collected," he reports.

Another channel is "a traditional lockbox-type environment," Stevens says. "Taxpayers mail in their checks and [tax] returns, and we clear them into a Treasury account."

The third channel "is a very antiquated process, which has been around since withholding taxes came into play 70 years ago: the over-the-counter channel," Stevens adds. Roughly 8,000 financial institutions, he continues, accept tax payments via this channel, in which "a business taxpayer will walk up to the teller, present a paper coupon with a check made to the U.S. Treasury, the banks bundle them up, credit to the U.S. Treasury, and send to the IRS."

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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