[Congressional Record Volume 142, Number 115 (Wednesday, July 31, 1996)]
[Senate]
[Pages S9318-S9319]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ELECTRONIC FUNDS TRANSFER PAYMENTS
Mr. GRASSLEY. Mr. President, I want to take a few minutes to announce
a temporary tax victory for small business taxpayers. The IRS has made
a failed attempt to implement new rules for payroll tax deposits. These
rules would require many employers to make their biweekly payroll tax
deposits electronically.
On July 12, I authored a letter to Treasury Secretary Rubin and IRS
Commissioner Margaret Milner Richardson. This letter discussed problems
that employers and banks are having in understanding new payroll tax
deposit rules and methods.
First, my letter asks Secretary Rubin to address specific questions
posed by employers and their banks. Employers and their banks have a
growing series of questions about the new procedures. Many of these
center around the degree of access that IRS has to bank customers'
accounts. Second, the letter reminds the Secretary that he has
authority under the law to provide some regulatory relief for small
businesses.
Mr. President, I ask unanimous consent that the text of my letter be
printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
U.S. Senate,
Washington, DC, July 12, 1996.
Secretary Robert E. Rubin,
Department of the Treasury,
Washington, DC.
Dear Secretary Rubin: This letter is to express our great
concern of the impact upon small businesses and their banks
of new Electronic Fund Transfer (EFT) rules. We hope that you
will act in accordance with Congressional intent to ensure
that the regulations do not create hardships for small
businesses. We also wish that you will answer specific
questions posed by our constituents working in the banking
industry.
Small Business Concerns
Because the current EFT rules create new and significant
burdens for small businesses, and because the tax code
specifically allows for exceptions from the EFT rules for
small businesses, we request that you take immediate action
to clarify the necessary exceptions well in advance of the
January 1, 1997 effective date.
Small employers presently utilize the Federal tax deposit
(FTD) coupon system and their local bank to make periodic
payroll tax deposits with the Federal government. Internal
Revenue Code Section 6302(h) seeks to reduce paperwork by
replacing the FTD coupon system with an electronic fund
transfer system. However, Congress intended, as set out in
section 6302(h) and its legislative history, that the
regulations prescribe exemptions and alternatives to the
EFT rules for small businesses. To date, these exemptions
and alternatives have not been promulgated.
As a result, employers and their banks are confused. The
current regulations seem to require EFT compliance by all
employers that had made employment tax deposits exceeding
$50,000 in 1995. In anticipation of the approaching effective
date, the Internal Revenue Service has begun the process of
educating employers of their new EFT compliance requirements.
Nonetheless, small and rural employers know that the Congress
intended that they be exempt, and they are eager to see the
intended exemptions.
In part, the legislative history of the new law prescribes
the following.
[[Page S9319]]
``The Committee [on Finance] intends that the regulations
do not create hardships for small businesses.''
``The provision grants the Secretary considerable
flexibility in drafting the regulations and, the Committee
[on Finance] urges the Secretary to take into account the
needs of small employers, including possible exemptions for
the very smallest of businesses from the new electronic
transfer system.''
Small businesses will suffer unintended hardships if your
agency is unable to clarify the exemptions in advance of the
effective date. It seems that many small businesses will need
their banks to affect these new EFT transactions. Because
their banks may view this as a new and different service,
those banks may find it necessary to require small businesses
to pay added fees. Also, because EFT transactions can involve
a new variety of either debit or credit transactions, some
small business persons are adverse to allowing the IRS the
ability to deduct funds from their business accounts
without what some may deem as an adequate ``paper trail''.
Employers that do not need to comply should be spared the
anxiety of the rule change.
Again, since the tax code anticipates exemptions for small
and rural businesses, we request that you act promptly to
define those exemptions in order to spare these employers the
expense and anxiety of attempting to comply. Because employer
penalties are involved, and the compliance date is
approaching, we think that this requires your immediate
attention.
Bank Concerns
Small businesses are not the only ones concerned about the
pending EFT rules. Although Iowa banks support efforts to
modernize our banking system and increase the use of EFT,
they have commented on potential problems arising from
implementation of these regulations. Since small businesses
are not governed by Internal Revenue Service Regulation E
(except sole proprietorships), banks question whether proper
notice and disclosure requirements will be in place. The
following are a list of unanswered questions raised by banks.
(1) What degree of access to bank customers' accounts is
provided to the Internal Revenue Service? Do the regulations
give the Internal Revenue Service open access to a bank
customer's account? What protections are in place to guard
against unfettered access and use of information in the
customer's account?
(2) A business may authorize a specific transfer to be made
for the purpose of paying depository taxes. However, if
penalties are assessed by the Internal Revenue Service, would
the bank then have the authority or requirement to withdraw
additional monies without the customer's approval from the
customer's bank account to pay these penalties?
(3) Who is responsible for notifying businesses of
transactions involving the bank account?
Iowa banks maintain that these are only several of many
unanswered questions about the practical applications of the
new regulations. Small businesses, banks, and the Internal
Revenue Service all have an interest in assuring the proper
and appropriate implementation of the regulations. Properly
promulgating efficient and effective regulations that do not
devastate either small businesses or banks requires
cooperation amongst all of the parties concerned. Two of the
three interested parties, small businesses and banks, have
expressed important and pressing concerns. We believe that
these questions and concerns should be addressed before
implementing regulations that pose unnecessary or burdensome
requirements on small business taxpayers or their banks.
Thank you in advance for your prompt and considerate
attention to these matters. Because taxpayers in our state
are eager to clarify these new rules, and because of the
coming effective date of January 1, 1997, we would appreciate
your efforts to make your response to us before August 23,
1996.
Sincerely,
Charles E. Grassley,
United States Senator.
Greg Ganske,
Member of Congress.
Mr. GRASSLEY. Mr. President, 2 weeks ago, Secretary Rubin responded
by letter that he appreciated my efforts to inform him of the problems,
and that he was reviewing the matter.
Today, IRS Commissioner Margaret Milner Richardson announced that the
IRS was suspending the 10 percent penalty for 6 months. The IRS had
originally intended employers who had deposited $50,000 or more last
year to begin to follow the new electronic funds rules by January 1,
1997. Now, though employers are still encouraged to comply, no penalty
will be imposed for failure to change deposit methods until after July
1, 1997.
Mr. President, though only a temporary reprieve, this is a victory
for small business employers, and I am proud of my part.
I welcome the efforts of Treasury and IRS to make a better second try
at educating taxpayers. In my view, taxpayers are the consumers of the
services provided by Treasury and the IRS. I think that good customer
service sometimes includes a good second try.
I am also enthusiastic about the potential for Electronic Funds
Transfers or EFT. For large and medium sized employers, EFT could
become more efficient and cost effective than the present coupon FTD
system. Some small businesses may realize similar economies. Other
small businesses should be allowed alternatives.
The Treasury Department has also said that it will soon be responding
to the questions that were posed in my letter. The response will be in
the form of answers to some of the most common questions.
Though that response is still forthcoming, I think that the will
allay some of the fears that employers and banks have posed. In part,
the IRS seems to have simply done a poor job in its initial effort at
education. However, I am waiting for the official response before
determining how completely or adequately it answers all of my concerns.
Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. WELLSTONE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________