[Congressional Record (Bound Edition), Volume 152 (2006), Part 11]
[Senate]
[Page 14442]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 REGULATING PAYROLL TAX DEPOSIT AGENTS

  Ms. SNOWE. Mr. President, I have previously introduced a bill to 
regulate payroll tax deposit agents. This bill will help to protect 
small businesses from payroll tax fraud and provide them with greater 
confidence when working with payroll service providers that are 
registered with the Internal Revenue Service and bonded or audited.
  In the fall of 2003, small businessman Roger Cyr, the owner of the 
Lily Moon Cafe in Saco, ME, learned that he was the victim of payroll 
tax fraud and 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 IRS.
  Unfortunately, I know that this type of payroll fraud is not unique 
to Maine and has also occurred in Utah, Iowa, as well as elsewhere. 
When payroll tax fraud occurs, many small owners, mom-and-pop 
companies, and other businesses are forced to pay their payroll taxes 
twice. This additional and unexpected expense can drive many of these 
companies out of business.
  These payroll fraud cases obscure 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, provide outstanding service, and help their clients with a 
range of complicated tax and accounting issues. In order to protect 
small business owners from the few dishonest payroll providers, and to 
protect the honest small payroll providers from the bad actors in their 
industry, I have introduced the payroll tax deposit agent's bill.
  My bill contains a number of provisions designed to guard small 
business owners against fraud by increasing the IRS' oversight of the 
payroll service providers. The bill creates a separate section of the 
Internal Revenue Code that will govern the payroll industry, it defines 
the responsibilities of payroll tax deposit agents, and requires all 
agents to register with the IRS or be penalized. The bill requires 
payroll agents to inform their clients of the clients' continued 
liability for all payroll taxes and the clients' need to periodically 
verify that their taxes are paid in full. The bill penalizes payroll 
providers that collect but fail to make required payments by extending 
section 6672 penalties to all payroll tax agents.
  These provisions also provide some reasonable flexibility to small 
payroll service providers. It gives payroll providers a choice between 
obtaining a surety bond or submitting to a third party audit that 
verifies if a payroll company's books are solid and well managed.
  Many small payroll service providers prefer audit option, which 
confirms that the payroll agent is making their client's tax deposit 
completely and on time, over bonding--as surety bonds can be very 
difficult for many small businesses to obtain. Additionally, small 
payroll agents argue that a third party audit actually provides their 
clients more protection against fraud than bonding because the audit 
verifies the payroll agent's sound financial practices while a surety 
bond only provides a limited reimbursement in cases of wrongdoing.
  Many of these payroll tax agent provisions were already approved by 
the Senate Finance Committee as part of the Good Government Act. The 
Good Government Act was approved by the Senate Finance Committee and 
passed the Senate by unanimous consent agreement in May of 2004. 
Unfortunately, the Good Governance Act never made it out of conference. 
Now, as I introduce this bill, I am hoping that we can help protect our 
small businesses by seeing that these necessary payroll protections 
become law.
  I would like to encourage my colleagues to help protect our small 
businesses from devious payroll tax agents by increasing IRS oversight 
and protections as contained in this bill.

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