[Congressional Record Volume 142, Number 133 (Tuesday, September 24, 1996)]
[Senate]
[Pages S11177-S11178]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DASCHLE:

  S. 2109. A bill to provide a 1-year delay in the imposition of 
penalties on small businesses failing to make electronic fund transfers 
of business taxes; to the Committee on Finance.


                       SMALL BUSINESS LEGISLATION

  Mr. DASCHLE. Mr. President, today I am introducing legislation that 
would waive for 1-year penalties on small businesses that fail to pay 
their taxes to the Internal Revenue Service [IRS] electronically.
  In July of this year, millions of small business owners received a 
letter from the IRS announcing that, beginning January 1, 1997, 
business tax payments would have to be made via electronic funds 
transfer. This letter sent shock waves through the small business 
community in South Dakota. The letter was vague and provided little 
information on how the new deposit requirement would work.
  In meetings, letters, and phone calls, South Dakotans have posed many 
questions to me that the IRS letter did not answer: ``How much will 
this cost my business?''; ``Will I have to purchase new equipment to 
make these electronic transfers?''; and ``Will the IRS be taking the 
money directly out of my account?''
  As you may recall, this new requirement was adopted as part of a 
package of revenue offsets for the North American Free-Trade Agreement.
  The Treasury Department was directed to draw up regulations phasing 
in the requirement, which will raise money by eliminating the float 
banks accrue on the delay between the time they receive tax deposits 
from businesses and the time they transfer this money to the Treasury.
  All businesses with $47 million or more in annual payroll taxes are 
already required to pay by electronic funds transfer. The new, lower 
threshold is estimated to bring 1.3 million small- and medium-sized 
businesses into the program for the first time.
  As a result of protests registered by many small businesses, the IRS 
decided to delay for 6 months the 10 percent penalty on firms failing 
to begin making deposits electronically by January 1, 1997. Not 
satisfied with this step, Congress recently passed an outright 6 month 
delay in the electronic filing requirement as part of the Small 
Business Job Protection Act of 1996.

[[Page S11178]]

  I strongly supported this amendment. However, I believe that these 
1.3 million businesses should be given further time to comply without 
the threat of financial penalties. Electronic funds transfer may well 
prove to be the most efficient system of payment for all concerned, 
including small businesses. Once they learn the advantages of the new 
system, these firms may well come to prefer it to the existing one, 
which requires a special kind of coupon and a lot of paperwork. But 
this is a new procedure, and many small employers are not sure what it 
will entail. That is why I believe we should enact a temporary waiver 
of penalties.
  The bill I am introducing today would suspend penalties for 
noncompliance for 1 year, until July 1, 1998. I believe this step is 
necessary to provide time for small businesses to be properly educated 
about the easiest, least burdensome, and most cost-efficient way to 
comply. In my view, whenever possible the IRS should avoid taking an 
adversarial approach toward the small business community, and, for that 
matter, any taxpayers. At every opportunity, the IRS should seek to 
help taxpayers comply with their obligations. I believe that, by 
removing the threat of penalties for a short while longer, this 
legislation will help the IRS fulfill this important part of its 
mission.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2109

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. WAIVER OF PENALTY ON SMALL BUSINESSES FAILING TO 
                   MAKE ELECTRONIC FUND TRANSFERS OF TAXES.

       No penalty shall be imposed under the Internal Revenue Code 
     of 1986 solely by reason of a failure by a person to use the 
     electronic fund transfer system established under section 
     6302(h) of such Code if--
       (1) such person is a member of a class of taxpayers first 
     required to use such system on or after July 1, 1997, and
       (2) such failure occurs during the 1-year period beginning 
     on July 1, 1997.
                                 ______