[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.

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