The IRS may levy a 10 percent penalty on small businesses who don’t enroll in an electronic tax-paying program by July 1.
But pending legislation introduced by Rep. Doc Hastings, R-Wash, would make the IRS mandate voluntary.
“Why should we be forced to file our taxes electronically?” Hastings asked a House taxation committee Wednesday.
Hastings said his family has owned a Columbia Basin paper and supply company since 1947. He was president of the company before his election to Congress in 1994.
James E. Donelson, chief of the IRS’s taxpayer service, said the new program will save business owners time and reduce paperwork. He argued Hastings’ bill would be unfair to those who have already complied.
“There are 960,000 people enrolled already,” Donelson said. “They (enrollees) should try to use it.”
Donelson rejected Hastings’ charge that the new system, known formally as the Electronic Federal Tax Payment System, would eliminate the “paper trail” businesses keep for tax records, noting that monthly bank statements will show tax payments.
But in an interview, Larry Stanley, of Empire Bolt and Screw, Inc., on East Trent, expressed doubts.
“After the transaction, you don’t get the hard copy in your hands like you do now,” said Stanley, who serves on the U.S. Chamber of Commerce’s Small Business Council. “I have a hard time understanding where it would be more convenient.”
Businesses don’t like giving the IRS electronic access to their bank accounts, despite assurances that a personal identification number, and a taxpayer identification number, will keep accounts safe, Stanley said.
“What’s to tell us that the information does not get into the wrong hands or screwed up or whatever,” he said.
The July deadline is catching many businesses off guard. Robert Henry, of United Specialty Advertising on West Sprague, said he had no idea the deadline was approaching. Henry said the new rule is typical of an out-of-touch IRS.
“People in government have no clue about what the cumulative effect of government has on businesses,” Henry said. “They always think it’s only just one little form. It’s a pretty considerable stack of paper.”
Stanley said many small businesses may ignore the new rule, especially after businesses protested and the IRS pushed back the initial enrollment deadline from Jan. 1 to July.
Unless altered, the phased-in mandate will affect a projected 1.2 million small businesses with a payroll of $50,000 or more. Previously, only 1,558 businesses with payrolls of more than $47 million have had to comply. Hastings’ bill would freeze the phase-in at the current level.
The mandate was an outgrowth of the 1993 North American Free Trade Agreement. It was designed to reduce paperwork and, to help pay costs of NAFTA, raise U.S. Treasury revenues.
It works like this: After Stanley, for instance, pays his 13 employees, he has three business days to pay payroll taxes through his bank, Washington Trust. The mandate eliminates the three-day gap, getting the money to the government instantly.
Hastings said in three years, the IRS has already collected $2.89 billion through the electronic fund transfers, coming close to the $3.3 billion NAFTA-related goal.
Cela Kruse, who runs an electric contracting business in Omak with her husband, Don, can’t understand what NAFTA has to do with her tiny business. She says she will refuse to file her taxes electronically.
“Why should NAFTA dictate how I pay my taxes?” Kruse said.
Hastings’ bill currently has 70 co-sponsors and has the support of several House Ways and Means committee members, including Rep. Jennifer Dunn, R-Wash. Co-sponsors include Reps. George Nethercutt, Linda Smith and Jack Metcalfe of Washington and Helen Chenoweth and Michael Crapo of Idaho.
Oklahoma Republican Don Nickles has introduced similar legislation in the Senate.
A Hastings spokeswoman said her boss hoped for a vote on the measure this year. But with the July deadline approaching, it’s not clear whether the current timetable will be altered.
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