[Congressional Record Volume 143, Number 63 (Wednesday, May 14, 1997)]
[Senate]
[Page S4485]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DASCHLE:
  S. 740. 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.


 the electronic funds transfer tax payments by small businesses act of 
                                  1997

  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.
  Last July, 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 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.
  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. A recent hearing in the House of Representatives 
documented a series of uncertainties and potential problems 
accompanying an extension of the electronic funds transfer mandate to 
smaller firms.
  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 or, for that 
matter, any taxpayer. 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, my bill 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. 740

       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.
                                 ______