Changes Needed to POTUS's EO Ending Federal Paper Checks
One of President Trump's lesser publicized executive orders (EO) is EO 14247, Modernizing Payments to and From America's Bank Accounts. This EO requires Treasury to stop issuing paper checks for all federal payouts by September 30 of this year, and requires all payments made by the federal government to be electronically processed. Further, it also requires that all federal receipts (including tax payments) should be processed electronically as soon as practicable to the extent permitted by law.
It's hard to argue the wisdom of eventually moving all federal payments and receipts to electronic form. After all, processing paper is inefficient and costly, and the risk of fraud and identity theft is far greater, as a general rule, when paper is involved. However, moving the entire federal government and hundreds of millions of taxpayers completely to electronic transactions is virtually impossible, and even if it could be accomplished by the deadline, it's fraught with serious problems.
For example, mandating a U.S. bank account for electronic tax payments could exclude vulnerable taxpayers like seniors and the "unbanked" population. I can tell you from my experience in public practice that older people typically don't understand electronic banking and/or are frankly afraid of it. Also, international banking rules currently limit Automated Clearing House (ACH) transfers with non-U.S. financial institutions.
In response, my profession, through the AICPA (our national professional association), suggests the following steps to ease the way forward:
- Implement exceptions to the order for individuals and business entities not physically present in the United States that do not have a U.S. bank account.
- Exempt temporary non-U.S. individuals, such as short-term business visitors, from electronic payment mandates, allowing them to receive tax refunds by paper check. Further, permit individuals without a Social Security number or individual taxpayer identification number to make tax payments by check until their taxpayer identification is issued, helping them meet their obligations and avoid penalties.
- Expand Electronic Federal Tax Payment System (EFTPS) capabilities, which would enable business accounts to submit payments on behalf of individuals for Forms 1040, U.S. Individual Income Tax Return, and 1040-NR, U.S. Nonresident Alien Income Tax Return, including estimated tax payments, extension payments, and balances due. There should be no cap on the number of individual transactions a business account can process.
- Exempt all trust and estate income tax return filings from the requirements of the order until Form 1041, U.S. Income Tax Return for Estates and Trusts, has been updated with the appropriate information and that implementation of the order be delayed for trusts and estates until Treasury and the IRS can address certain issues concerning the administration of an estate or trust. The IRS should also allow trusts and estates to pay via IRS Direct Pay rather than requiring them to set up an EFTPS account.
- Provide specific guidance regarding how exceptions will be applied for and granted to qualified taxpayers for whom this order would present an undue burden, including individuals over the age of 65 and taxpayers who are unable or unwilling to obtain U.S. bank accounts. The AICPA also recommends that taxpayers granted an exception have the option to receive tax refunds as a paper check or through a direct express card.
- Extend the time frame for implementation of the order or that, at a minimum, the Treasury secretary offers meaningful transitional rules when facilitating the transition of the federal disbursement and receipt system to being exclusively electronic.
- Consider seeking statutory authority for the mandates outlined in the executive order, which would provide a solid foundation for this transition to electronic payments.
- Convene a group of stakeholders, including the AICPA, to assist with the establishment of rules and processes for implementing the order.
The deadline for implementation is just around the corner, and so far, the IRS has largely been unheard from on this matter. Not only is that a problem for those of us in the tax professional community, but due to lack of publicity on the matter, could be an unexpected nasty surprise for taxpayers in just a few weeks.
