longest, I assume Treasury would accept the notes in exchange for discharging the tax liability, and then send the notes to Fed, who would redeem them in exchange for a credit to Treasury's account at the Fed. So the government in the actual world has been a user of the currency issued by the (deconsolidated) Fed, up until presentation of the currency by the government to the Fed. I doubt that any notes received in this way are shredded by the Fed unless they are damaged beyond further usefulness? Otherwise, presumably, they can remain in inventory for reuse/reissue? Or, perhaps payment of taxes with currency is so rare that the notes are shredded as a matter of course, whatever their condition? In any event, in a deconsolidated institutional structure, the notes while in the possession of Treasury do go somewhere -- to the Fed? A further complication is the fact that someone can pay taxes in cash at a bank which holds the TT&L account. My guess is that the bank takes the cash and credits the Treasury's account and notifies the Fed about the increase in cash holdings. If some bank customer needs cash, the bank can give the same cash notes which was used for the payment of taxes. "Unfit and mutilated currency processed by the Treasury in Washington, D.C. is functioned through the books of the Richmond Reserve Bank. On the day of redemption, Treasury will advise the Richmond Reserve Bank by wire of the amount for