[Congressional Record Volume 143, Number 43 (Monday, April 14, 1997)]
[Senate]
[Pages S3123-S3125]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NICKLES (for himself, Mr. Breaux, Mr. Mack, Mr. Baucus, 
        Mr. D'Amato, Mr. Bond, Mr. DeWine, Mr. Cochran, Mr. Enzi, Mr. 
        Hagel, and Mr. Thomas):
  S. 570. A bill to amend the Internal Revenue Code of 1986 to exempt 
certain small businesses from the mandatory electronic fund transfer 
system; to the Committee on Finance.


         MANDATORY ELECTRONIC FUND TRANSFER SYSTEM LEGISLATION

  Mr. NICKLES. Mr. President, today, I am introducing legislation with 
my colleague from Louisiana, Senator Breaux, to address the ever-
recurring problem of Federal mandates on small business. Our bill will 
prohibit the Internal Revenue Service from forcing thousands of small 
businesses to deposit payroll taxes by electronic funds transfer under 
threat of penalty. In addition to Senator Breaux, I would like to thank 
several other Senators who have agreed to cosponsor this legislation, 
including Senator Mack, Senator Baucus, Senator D'Amato, Senator Bond, 
Senator DeWine, Senator Cochran, and Senator Enzi.
  Legislation enacted in 1993 to implement the North American Free-
Trade Agreement directed the IRS to begin collecting a progressively 
larger percentage of payroll tax deposits from employers by electronic 
funds transfer, in lieu of the Federal tax deposit coupon system. 
Congress' intent was to simplify the tax deposit system and reduce 
paperwork for taxpayers, financial institutions, and the IRS. The 
Senate report accompanying this bill recommended that the 
implementation of this mandate not create hardships for small 
businesses, and that no small business should be required to purchase 
computers or gain access to any electronic equipment other than a 
touch-tone telephone. Further, the report urged Treasury to take into 
account the specific needs of small employers, including possible 
exemption for the very smallest businesses from the electronic deposit 
system.
  Unfortunately, the IRS has done little to mitigate the impact on 
small business. Instead, they sent notices to 1.2 million small 
businesses last summer stating that they must begin using the new 
electronic Federal tax payment System, or EFTPS, to make payroll tax 
deposits on January 1, 1997. Further, the IRS told these taxpayers that 
continued use of the Federal tax deposit coupon system would result in 
penalties equal to 10 percent of each deposit. The IRS targeted this 
mandate on any business which deposited more than $50,000 in payroll 
taxes in 1995. Prior to this time, the threshold for mandatory 
electronic deposits was $47 million. If the IRS is not stopped, Mr. 
President, the threshold will drop to $20,000 next year.
  The reaction from the small business community to this mandate last 
year was adverse and vocal, Mr. President. Fortunately, Congress acted 
to delay the EFTPS mandate until July 1, 1997. However, that date is 
quickly approaching, and thousands of small business owners are no more 
comfortable with the mandate now than they were last year. Business 
owners who have used the coupon system for years to diligently pay 
their taxes on time are incensed to learn that they can be forced from 
that system against their will. Some fear IRS access to their bank 
accounts, and others fear the additional costs which may arise if their 
bank begins charging fees for these transactions. Finally, many small 
businesses are discovering that their current bank does not participate 
fully in the electronic transaction system.
  Mr. President, small business owners should not have a new tax 
deposit system forced down their throats without alternatives and 
without enough time or information to make an orderly transition to the 
new system. Further, they should not be forced to incur fees or other 
additional costs in order to pay their taxes. While I agree that many 
taxpayers will come to prefer an electronic deposit system, I do not 
believe such a change should be mandated under threat of penalty. If a 
small business prefers to use the coupon system and continues to pay 
their taxes on time, they should not be penalized for doing so.
  Mr. President, the legislation Senator Breaux and I are introducing 
today will phase in the requirement to pay depository taxes 
electronically in manageable increments and exempt most small 
businesses permanently. Under our bill, only businesses who annually 
deposit over $5 million in payroll taxes will ever be mandated to use 
the electronic deposit system. Further, the bill directs the Secretary 
of the Treasury to establish a program to encourage all business 
taxpayers to voluntarily participate in the electronic deposit system.
  Enactment of this legislation will free small business owners from 
yet another heavyhanded Federal mandate and preserve their right to pay 
their taxes in a manner which best suits their business needs. I 
encourage all Senators to join in this effort.
  Mr. President, again I wish to thank the Presiding Officer of the 
Senate at this time, the Senator from Wyoming, for cosponsoring this 
legislation. I also ask unanimous consent that Senator Hagel be added 
as an original cosponsor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. NICKLES. Mr. President, to summarize again for the benefit of my 
colleagues, effective July 1, if we do not change this current--I 
started to say ``law,'' but this is not a law. The IRS came up with a 
regulation. We passed a law. Congress passed a law that says we want to 
encourage electronic fund transfers of payroll taxes. A good idea. It 
makes sense. It will work for a lot of people.
  IRS, to implement this, and maybe with some direction of Congress--
Congress said put most of the taxpayers in. The IRS did so, and then 
they came up with a 10-percent penalty. That is a big inducement, 
encouragement. Congress did not put on the 10-percent penalty; the IRS 
did--it puts a gun to the taxpayer's head--and then said, ``You have to 
do this.'' Then they said, ``This is not too much of a challenge for 
bigger employers.'' As a matter of fact, the current requirement, the 
threshold is $47 million of payroll taxes. If you have payroll taxes of 
$47 million, that is a big operation. And they are doing that now. That 
actually applies to 1,500 taxpayers in the country today.
  The next threshold level drops from $47 million to $50,000. Now you 
are talking about a lot of companies. You

[[Page S3124]]

are talking about a lot of businesses. You do not have to be very big 
to have payroll taxes of $50,000. You might have total payroll of a 
quarter of a million or $300,000. That deadline is July 1. It was to be 
January 1. We postponed it for 6 months.
  The legislation we have introduced today, it phases down the $47 
million threshold to $30 million, to $10 million, to $5 million, and 
says, ``If you have payroll taxes of less than $5 million, you do not 
have to do this. You can still do it, you still have the option to do 
it.''
  I met with some representatives from the IRS. They said, ``We are 
concerned, if we pass this legislation, a lot of people might not get 
into the system. Maybe that would not be fair for the people already in 
the system.''
  I said I want them to have the option. In our legislation, we want to 
encourage people to move into the electronic fund transfer. We think 
that would be good. A lot of people pay their home notes--I do that. 
When I pay my home mortgage, I do it by electronic fund transfer where 
you used to have the coupon system. I am happy with that. I think a lot 
of taxpayers will be happy paying payroll taxes this way, and we want 
this to be an option.
  We want to eliminate the 10-percent penalty for noncompliance, 
especially for small business.
  So that is what we have done. I ask unanimous consent Senator Thomas 
also be included as an original cosponsor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. NICKLES. Mr. President, I ask unanimous consent to have printed 
in the Record immediately following my statement a copy of this 
legislation and, in addition to the legislation, a letter from the 
Small Business Legislative Council and a letter from the National 
Restaurant Association endorsing the bill.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 570

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,
       (a) In General.--Section 6302(h)(2) of the Internal Revenue 
     Code of 1986 (relating to use of electronic fund transfer 
     system for collection of certain taxes) is amended to read as 
     follows:
       ``(2) Taxpayers subject to system.--
       ``(A) In general.--The regulations referred to in paragraph 
     (1) shall only require taxpayers to use the electronic funds 
     transfer system for a calendar year if the aggregate amount 
     of depository taxes of such taxpayer for the second preceding 
     calendar year exceeded the applicable dollar amount.
       ``(B) Applicable dollar amount.--For purposes of 
     subparagraph (A)--

``If the 2d preceding calendar year is:The applicable dollar amount is:
    1995....................................................$47,000,000
    1996.....................................................30,000,000
    1997.....................................................20,000,000
    1998.....................................................10,000,000
    1999 or later............................................5,000,000.

       ``(C) Aggregation rule.--All persons treated as a single 
     employer under subsections (a) and (b) of section 52 shall be 
     treated as a single taxpayer for purposes of subparagraph 
     (A).
       ``(D) Voluntary compliance.--The Secretary shall encourage 
     taxpayers not described in subparagraph (A) to participate in 
     the electronic funds transfer system. The participation of 
     such taxpayers shall be voluntary.''
       (b) Conforming Amendment.--Section 6302(h)(4) of such Code 
     is amended to read as follows:
       ``(4) Coordination with other electronic fund transfer 
     requirements.--Under regulations, any tax required to be paid 
     by electronic fund transfer under section 5061(e) or 5703(b) 
     shall be paid in such a manner as to ensure that the 
     requirements of the second sentence of paragraph (1)(A) are 
     met.''
       (c) Reports.--The Secretary of the Treasury or his delegate 
     shall submit annual reports to the Committee on Finance of 
     the Senate and the Committee on Ways and Means of the House 
     of Representatives. Such reports shall provide an analysis of 
     the progress being made in implementing the electronic funds 
     transfer system under section 6302(h) of the Internal Revenue 
     Code of 1986, including, but not limited to, information with 
     respect to--
       (1) the number and nature of any penalties imposed on 
     taxpayers due to noncompliance with such system,
       (2) any administrative efficiencies accruing to the Federal 
     Government by reason of such system, and
       (3) the amount of any additional costs imposed on 
     businesses to comply with such system.
       (d) Effective Date.--The amendments made by this section 
     shall apply to deposits required to be made on and after the 
     date of the enactment of this Act.
                                  ____



                              National Restaurant Association,

                                   Washington, DC, April 14, 1997.
     Senator Don Nickles,
     Assistant Majority Leader,
     Washington, DC.
       Dear Senator Nickles: On behalf of the 770,000 restaurant 
     locations nationwide, we would like to thank you and Senator 
     Breaux for introducing legislation to help reduce the 
     regulatory burden on our nation's employers.
       As part of a revenue-raising provision in NAFTA, our 
     members were mandated to begin filing payroll taxes 
     electronically over a five year phase-in period. Starting 
     July 1, all businesses that deposit over $50,000 in federal 
     payroll taxes will have to start wiring their tax deposits to 
     the Internal Revenue Service. This is the first phase-in that 
     will truly affect the small businesses, including thousands 
     of restaurant owners. For months, the National Restaurant 
     Association and other employer groups have been warning the 
     government that many businesses don't know about the mandate 
     and could face penalties beginning in July for not complying.
       We strongly support this bipartisan legislation which will 
     allow small businesses the option of filing electronically, 
     and will provide a reasonable phase-in of the mandate for 
     larger businesses. Thank you for your leadership on this 
     issue.
           Sincerely,
     Elaine Z. Graham,
                                            Senior Vice President,
                                Government Affairs and Membership.
     Kathleen O'Leary,
     Legislative Representative.
                                  ____

                                                    Small Business


                                          Legislative Council,

                                   Washington, DC, April 14, 1997.
     Hon. Don Nickles,
     U.S. Senate,
     Washington, DC.
       Dear Senator Nickles: On behalf of the members of the Small 
     Business Legislative Council (SBLC), I wish to commend your 
     efforts to address the concerns of the small business 
     community with respect to the Electronic Federal Tax Payment 
     System (EFTPS).
       The EFTPS has proven to be a source of great frustration 
     for us. On one hand, we applaud the movement towards an 
     electronic funds transfer system. Any small business owner 
     can vouch for the inherent flaws in the current paper coupon-
     based deposit system. Errors and inadvertent late payments 
     are still all too frequent. And, while the IRS has become 
     more reasonable in ultimately absolving small businesses of 
     blame, it is difficult to turn off the IRS paper spigot. It 
     can take several unnecessary exchanges to resolve the 
     problem.
       The electronic age is upon us and, ultimately, most small 
     businesses will embrace it fully. But the small business 
     community is not ready yet and, more importantly, neither is 
     the technology and structure to implement this concept. As 
     you know, we secured one delay in implementation in the hopes 
     everything would work out.
       It appears we still have a long way to go, and until such 
     time as the small business community's confidence is secured, 
     it appears a voluntary approach is in everyone's best 
     interest. If the technology does work, it would seem foolish 
     for small business' owners not to embrace it. But, rather 
     than work everyone up into a ``tizzy'' as each new deadline 
     approaches, it may be better to take the longer view, and 
     make sure everyone comes on-board at their own pace and 
     comfort level. We'd rather see the program make it on its own 
     merits. And it does have merit, if done properly.
       Therefore, we support your effort. Once again, you have 
     demonstrated your strong commitment to small business.
       As you know, The Small Business Legislative Council (SBLC) 
     is a permanent, independent coalition of nearly one hundred 
     trade and professional associations that share a common 
     commitment to the future of small business. Our members 
     represent the interests of small businesses in such diverse 
     economic sectors as manufacturing, retailing, distribution, 
     professional, and technical services, construction, 
     transportation, tourism, and agriculture. For your 
     information, a list of our members is enclosed.
           Sincerely,
                                               Benhamin Y. Cooper,
                                                         Chairman.

  Mr. BAUCUS. Mr. President, I am very pleased today to join my 
colleagues Senator Nickles and Senator Breaux in introducing 
legislation to help support America's small businesses. This bill will 
address the problem created for the small business community by the 
Internal Revenue Services' requirement that they convert to a system of 
depositing payroll taxes by electronic funds transfer.
  IRS has been implementing legislation directing the agency to begin 
collecting a progressively larger percentage of Federal tax deposits 
from employers by electronic funds transfer, rather than the current 
Federal tax deposit coupon system. The intent behind the legislation 
was to simplify the tax

[[Page S3125]]

deposit system and reduce paperwork for taxpayers, financial 
institutions, and the Internal Revenue Service itself. The Senate 
report accompanying the bill recommended that the implementation of 
this mandate not create hardships for small businesses, and that no 
small business should be required to purchase computers or gain access 
to any electronic equipment other than a touch-tone telephone. The 
report also urged Treasury to take into account the specific needs of 
small employers, including possible exemption for the very smallest 
businesses from the electronic deposit system.
  We do not believe the Treasury Department has accomplished this goal. 
While a timetable for compliance has been established, there is little 
evidence that the concerns of the small business community have been 
alleviated as July 1, 1997, the deadline for implementation, draws 
near. Business owners who have used the coupon system for years to 
diligently pay their taxes on time do not understand why they are being 
required to convert to an electronic funds transfer system. Many small 
business owners I have spoken with in Montana fear IRS access to their 
bank accounts, particularly in light of recent reported incidences of 
IRS employee browsing through taxpayer records without a valid reason. 
Other small business owners are concerned, and not unreasonably, that 
banks may begin charging fees for these transactions, adding to their 
costs of doing business. Finally, many small businesses are discovering 
that their current banks do not even participate fully in the 
electronic transfer system, forcing them to find a new bank through 
which to send in their deposit payments.
  Mr. President, I agree with my colleagues that small businesses have 
not been given enough time or information to make an orderly transition 
to the new electronic funds transfer system. I also agree that they 
should not be required to pay a fee in order to pay their taxes. The 
bill we are introducing today will exempt businesses who annually 
deposit under $5 million in payroll taxes from the electronic payment 
requirement permanently, and phase it in for the rest at a much more 
manageable rate.
  I believe this bill will preserve the right of small business owners 
to pay their taxes in a manner which best suites their business needs. 
I commend Senators Nickels and Breaux for the work they have done on 
this bill, and encourage our other colleagues to join in our effort.
                                 ______