Payment-system operators are preparing for a flood of transactions when smaller corporations begin filing tax payments electronically this year.

Under a federal mandate connected to the North America Free Trade Agreement, many U.S. corporations with payroll tax deductions exceeding $50,000 are required to file their taxes electronically by July 1, 1997. (Others that meet that standard have a Jan. 1, 1998, deadline.)

Already, the government's Electronic Federal Tax Payment System has enrolled more than 840,000 companies. But the number of first-time filers should grow by leaps and bounds in the next few months, adding volume to payment systems run by the banking industry, experts said.

"This is a significant project for all parties involved," said Lawrence F. Buettner, senior vice president and general manager at First Chicago NBD Mercantile Services, one of two fiscal agents contracted by the government to process tax payments.

The other agent is NationsBank Corp. Combined, the agents expect to process tax payments for about 1.2 million companies by July 1.

On Jan. 1, 1999, the number of participants should grow even larger, as all companies with payroll tax deductions exceeding $20,000 (about 90% of all U.S. companies) are required to file electronically.

"The mandate is coming on like an avalanche," said Tony Smith, president of Intranet Inc., Newton, Mass.

Intranet, which sells integrated electronic funds transfer systems, is supplying First Chicago NBD Mercantile Services with clearing and settlement software for automated clearing house transfers.

At First Chicago, the software, called Cache, is expected to be processing about 80 million transactions a year, worth $500 billion, by 1999. NationsBank expects to handle a similar volume.

The goal of the federal mandate is to reduce the operational burden on the Internal Revenue Service of a paper-based tax processing system.

The mandate for companies with $50,000 of payroll deductions had been slated to take effect last month, but widespread confusion among many smaller companies prompted the Treasury to extend the deadline.

"The delay was good in some ways because the Internal Revenue Service and the Financial Management Service had an opportunity to go back and do more education," said James Hagedorn, spokesman for the latter agency, which is the cash management unit of the Treasury Department.

Taxlink, the Treasury's prototype electronic collection system, has collected $165 billion through this fiscal year. It should be phased out in favor of the Electronic Federal Tax Payment System by July.

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