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Mandate for Electronic Payment of Taxes Angers Small Business

Monday, July 29, 1996

OnLine

John Staples, assistant to the Internal Revenue Service commissioner, has scheduled a meeting Wednesday with small business groups to answer their concerns about a new regulation requiring businesses to file payroll taxes electronically beginning Jan. 1, 1997.

The rule has agitated small businesses and prompted complaints from two key senators.

The businesses want the IRS to delay implementation of the so-called Electronic Federal Tax Payment System (EFTPS) for at least a year until taxpayers, business owners, and practitioners are better educated about the plan. They also want the system tested on a volunteer basis and a moratorium on penalties until their concerns have been addressed.

"Because there is no public information on enrollment and systems requirements, nor any final regulations regarding requirements related to the new EFTPS, the banking community and accountant groups remain largely unaware of these requirements and are not in a position to provide the banking and other services U.S. employers will need to deposit accurately and timely [tax returns] or advise their clients regarding requirements," the group of 38 businesses told Senate Finance Committee Chairman Bill Roth, R-Del., in a July 23 letter.

None of the 600 certified public accountants attending a recent conference in Boston knew that a mandate to deposit taxes electronically was looming, the letter continued.

Business groups signing the letter included the U.S. Chamber of Commerce, the National Federation of Independent Businesses, and the American Payroll Association.

The IRS expects about 1.3 million small- and medium-sized businesses to file taxes electronically beginning Jan. 1, 1997, as required by the North American Free Trade Agreement of 1993. NAFTA required the program to be phased in, with 800 of the country’s largest taxpayers filing on Jan. 1, 1995, and about 800 more businesses filing on Jan.1, 1996.

Also voicing concerns about EFTPS were Sen. Christopher Bond, R-Mo., chairman of the Senate Committee on Small Business, and Sen. Dale Bumpers, D-Ark., the ranking Democrat on that committee.

The two wrote a July 24 letter to IRS Commissioner Margaret Richardson and Treasury Secretary Robert Rubin saying that many small businesses are confused about the new system.

"Because small businesses face this new requirement in less than six months, we urge you to take all necessary actions to reduce the burden on this critical segment of our economy," the senators wrote.

Some businesses believe the IRS is going to debit their bank accounts without their permission, the senators said. Other businesses think they must invest in new computer and telephone systems in order to conduct the transfer themselves.

The senators asked Richardson and Rubin to respond to the suggestion that the program’s January 1, 1997, deadline be postponed.