[Congressional Record Volume 153, Number 111 (Thursday, July 12, 2007)]
[Senate]
[Page S9138]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE:
  S. 1773. A bill to amend the Internal Revenue Code of 1986 to 
regulate payroll tax deposit agents; to the Committee on Finance.
  Ms. SNOWE. Mr. President, I rise today to introduce the Small 
Business Payroll Protection Act of 2007. This crucial legislation will 
protect small businesses from payroll tax fraud and provide them with 
greater security when working with IRS registered payroll service 
providers.
  By way of background, let me say that in the fall of 2003, small 
businessman Roger Cyr, owner of the Lily Moon Cafe in Saco, Maine, 
learned that he was the victim of payroll tax fraud and that he owed 
$52,000 in back taxes. He was one of a number of small business owners 
in Maine who were forced to pay their payroll taxes twice after an 
unscrupulous payroll provider ran off with their tax deposits instead 
of making the required payments to the Internal Revenue Service.
  Unfortunately, this type of payroll fraud is not unique to my State 
of Maine, with instances of malfeasance occurring in Georgia, Texas, 
Utah, Iowa, Maryland, New York, and elsewhere throughout the U.S. It is 
unconscionable that these small business owners, are required to pay 
their payroll taxes twice. This additional and unexpected expense can 
drive these companies out of business.
  But let me be clear, these egregious examples of payroll fraud hide 
the fact that most small businesses use payroll providers that are 
honest, meticulous, and trustworthy. The majority of payroll tax agents 
pay their clients' taxes accurately, and on time, providing outstanding 
service as they help their clients with a myriad of complicated tax and 
accounting issues. Consequently, the organizing principle behind the 
bill I introduce today is to safeguard small business owners from afew 
dishonest payroll providers, and to shield the honest payroll providers 
from the bad actors in their industry.
  To that end, this legislation contains a number of provisions 
designed to guard small business owners against fraud. These provisions 
include increasing IRS oversight of payroll service providers, creating 
a separate section of the Internal Revenue code that will govern the 
payroll industry, defining the responsibilities of payroll tax deposit 
agents, and requiring all agents to register with the IRS or be 
penalized. The bill also penalizes payroll providers that collect, but 
fail to make, required tax payments by extending section 6672 penalties 
to all payroll tax agents. Additionally, payroll clients will also be 
informed of their continued liability for all of their payroll taxes as 
well as their obligation to periodically verify that their payroll 
taxes are paid in full.
  Now, I recognize that the new regulations will be more costly for 
small payroll companies to implement than for large payroll companies. 
In order to keep client protections in place, while providing small 
payroll services providers with some reasonable flexibility, the bill 
offers a choice. Payroll providers can either obtain a surety bond, or 
comply with quarterly third-party certifications.
  Surety bonds can be very difficult for many small businesses to 
obtain. Consequently, instead of bonding, many small payroll service 
providers prefer the targeted quarterly certification option, which 
ensures that payroll agents are depositing clients' tax funds 
completely and on time. Small payroll agents assert that the 
certification process actually provides their clients with greater 
fraud protection than a surety bond because the certification verifies 
the payroll agent's sound financial practices quarterly, while a surety 
boud only requires an annual audit.
  As Ranking Member of the Senate Committee on Small Business and 
Entrepreneurship, I understand how critical it is to defend our small 
business owners from tax fraud. Enacting these provisions will help 
protect small companies in Maine, Utah, Georgia and in each of our 
states, from the very few dangerous payroll providers that would steal 
their clients' payroll taxes. At the same time, this bill recognizes 
that small payroll tax agents must be provided flexible and reasonable 
regulatory options that offer real protection to their clients. This 
legislation contains both strong safeguards and small business 
flexibility.
  Mr. President, I urge my colleagues to help create a buffer for our 
small businesses from devious pay roll tax agents by increasing IRS 
oversight and protections as contained in this bill. I hope my 
colleagues will strongly support the Small Business Payroll Protection 
Act of 2007.
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