Regulation of payroll tax deposit agents

(a)

In general

Chapter 77 of the Internal Revenue Code of 1986 (relating to miscellaneous provisions) is amended by adding at the end the following new section:

7529.

Payroll tax deposit agents

(a)

Registration

(1)

In general

The Secretary shall establish a system to require the initial registration and the annual renewal of the registration of persons seeking to act as payroll tax deposit agents authorized to make Federal employment tax deposits on behalf of employer taxpayers. Such system shall also— (A)establish a registration and renewal fee for each payroll tax deposit agent in an amount not to exceed $100, (B)provide the payroll tax deposit agent the option of either submitting a bond as specified in subsection (b) or submitting to a quarterly certification as specified in subsection (c), (C)require such disclosures as are specified in subsection (d), and (D)provide penalties for unregistered persons acting as payroll tax deposit agents with respect to Federal tax deposits and for payroll tax deposit agents who fail to furnish such disclosures as are specified in subsection (d), in an amount not to exceed $10,000 for each 90 days of noncompliance. (2)

Definition of payroll tax deposit agent

For purposes of this section, the term payroll tax deposit agent means any person which provides payroll processing or tax filing and deposit services to 1 or more employers (other than an employer acting on its own behalf) if such person has the contractual authority to access such employer’s funds for the purpose of making employment tax deposits. Such term shall not include any person which only transfers such funds to the appropriate government authority (regardless if such person has the authority to determine the amount of such transfer) and does not otherwise have the authority to access such funds. (3)

Employment tax

For purposes of this section, the term employment tax includes unemployment insurance contributions. (b)

Bonding

(1)

In general

If a payroll tax deposit agent elects to submit a bond under subsection (a)(1)(B), the amount of such bond shall be not less than $50,000 nor more than $500,000, and shall be determined with respect to each payroll tax deposit agent under regulations prescribed by the Secretary. (2)

Surety

Any bond or security furnished pursuant to this section shall be in such form and with such surety or sureties as may be prescribed by regulations issued pursuant to section 7101. (3)

Evidence of bond

Evidence of such bond shall be filed with the Secretary with the initial registration and each annual renewal of the registration of persons licensed to act as payroll tax deposit agents. (c)

Quarterly certifications

If a payroll tax deposit agent elects to submit to a quarterly certification under subsection (a)(1)(B), such certification shall be performed by an independent third party who is qualified to perform such certifications under targeted criteria established by the Secretary, at the direction of the Secretary, and shall be based on the following narrowly targeted principles— (1)that the escrow account of the payroll tax deposit agent in which such agent holds its employers’ taxes is balanced to the total of quarterly reconciliation statements (i.e., Internal Revenue Service Forms 941 and State equivalents), and any liabilities collected but not yet deposited with the respective government authority, (2)that the escrow account funds of the payroll tax deposit agent are not commingled with such agent's operating funds, (3)that there is no evidence that the payroll tax deposit agent used any of the funds in such agent's escrow account to pay such agent's operating costs, and (4)that there is adequate receipt evidence that such agent paid the required employment taxes on behalf of the employers to the proper government employment tax authority.

A copy of each completed quarterly certification report shall be filed quarterly with the Secretary and no payroll tax deposit agent shall obtain its annual renewal of the registration of persons licensed to act as payroll tax deposit agents unless all such copies have been filed.

(d)

Disclosure

The Secretary shall require payroll tax deposit agents to disclose to each client prior to or at the time of contracting for payroll services, and to each existing client at least quarterly— (1)the client’s continuing liability for payment of all Federal and State employment taxes notwithstanding any contractual relationship with a payroll tax deposit agent, (2)the mechanisms available to the client to verify the amount and date of payment of all tax deposits made by the payroll tax deposit agent on behalf of such client, including the Internet address and telephone number of each Federal and State employment tax authority related to such deposits, and (3)such other information that the Secretary determines is necessary or appropriate to assist employers in the selection and use of payroll tax deposit agents. (e)

Tax deposits and returns

Only persons registered under this section may— (1)make Federal tax deposits on behalf of an employer, (2)sign and file Federal employment tax returns on behalf of a taxpayer, and (3)have access to confidential tax information relating to such employer. (f)

Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section.

(b)

Quarterly certification criteria

In establishing the criteria for the quarterly certification required under section 7529(c) of the Internal Revenue Code of 1986, as added by subsection (a), the Secretary of the Treasury shall ensure, to the extent practicable, that the burden of the certification process on the payroll tax deposit agent is minimized. (c)

Payroll tax deposit agents subject to penalty for failure To collect and pay over tax, or attempt To evade or defeat tax

(1)

In general

Section 6672(a) of the Internal Revenue Code of 1986 is amended by inserting , including any payroll tax deposit agent (as defined in section 7531(a)(2)) who has assumed the obligation to pay over any tax by contract with a taxpayer (but only to the extent that such payroll tax deposit agent has received irrevocable payment of funds for the corresponding tax liabilities from such taxpayer), after imposed by this title. (2)

Penalty not subject to discharge in bankruptcy

Section 6672(a) is further amended by adding at the end the following new sentence: “Notwithstanding any other provision of law, no penalty imposed under this section may be discharged in bankruptcy.”. (3)

Conforming amendment

Section 6672(b)(1) of the Internal Revenue Code of 1986 (relating to preliminary notice requirement) is amended by striking the word taxpayer and inserting the word person each time it appears. (4)

Construction

The amendment made by paragraph (1) shall not be construed to create any inference with respect to the interpretation of section 6672 of the Internal Revenue Code of 1986 as such section was in effect on the day before the date of the enactment of this Act. (d)

Clerical amendment

The table of sections for such chapter 77 is amended by adding at the end the following new item:

Sec. 7529. Payroll tax deposit agents.

(e)

Effective dates

(1)

In general

Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act. (2)

Penalty

The amendments made by subsection (c) shall apply to failures occurring after the date of the enactment of this Act.