SB/SE Payroll Tax Issue Issue Committee Meeting Minutes

July 31, 2003
3:00 pm

Attendance

• James Abraham, OH
• Denise Bigger, IA
• Justin Doucette, NV
• David Meyer, NJ
• Judi Nicholas, Designated Federal Official
• Theodore Perros, DC
• Charles Silva, MA
• Leonard Steinberg, NJ, Chair
• Steven Wood, AR
• William Woods, TX
• Nancy Quarles, MI

Program Owner

• Margie Kinney

Staff/Note Taker

• Mary Peterson O'Brien

Welcome/Announcements/Review Agenda
Leonard welcomed the committee to the teleconference.

Roll Call
Mary O'Brien took the roll call. Eleven members were present; therefore, meeting the requirements for a quorum.

Updates from the Joint Committee
Leonard informed everyone that the next joint committee meeting would be held on August 19th . Leonard gave a synopsis of the last joint committee meeting.

• Staggered terms: On a voluntary basis, 33% of the current TAP will stay on for an additional year. Out of the new members to come on board, 33% will be asked to have a three-year term. One third will leave at the end of the two-year term.
• Issue committees – All issue committees will be up for renewal. Each member may request a change in committees.
• Next committee meeting is scheduled for September 4th. This meeting will need to rescheduled. This topic will be discussed at the end of the meeting.

Updated from the Program Owner
Margie states that there are no updates at this time and introduced the guest speaker.

Guest Speaker: Larry Faulkner, Manager of Electronic Business Returns and E Payment Documents SB/SE CAS Topic: Electronic Deposits
Larry talked about what he is doing and what is in the works in his shop.

Electronic Federal Tax Payment System. The system that the federal government built in 1996 as a way to pay taxes electronically. As it has matured over time, it has had to have a broader set of functions. In the pasts two weeks, a new system has been released for EFTPS Internet application. Some of the attributes to this system include:

• Allows both individuals and businesses to go on line and pay any type of federal tax payment.
• Offers the opportunity to make an instant payment thus avoiding having to preenroll and having to give the IRS banking information. (Previously, it would take an individual or a business to wait 4 weeks from the date of enrollment to make a payment. For someone who has approached April 15 th and owes, can have it automatically deducted from his or her checking account. For Businesses, a payment can be made for what would be owed the next day,
• Most software products have a feature to pay when filing the return (business or individual).
• For the Future, the IRS is looking into making it available to businesses to pay taxes with a credit card. The IRS is working with software companies to add this feature.

Question: What about the fees associated with paying with a credit card? Larry replied that it is a legal requirement to pay a merchant fee. A business can write this off; however, an individual cannot.

• EFTPS allows you to look at 16 months worth of payment histories on your account. Allows you to balance books.
• EFTPS will schedule in advance, estimated tax payments. Most people pay the same amount every quarter. Question: Can someone cancel or change the payment? Larry replied that you can cancel or change the payment up to two business days before the scheduled payment.
• Free software for EFTPS or the phone makes it more convenient and businesslike.

Online Banking: If bank uses check free , than an individual can go onto the bank's website and make a payment to the IRS electronically.

International Taxpayers. The IRS is working with the Federal Reserve Bank and the European Swift Banking System so that a payment can be made electronically from a foreign source.

The IRS is working with a number of states to do more integration with what the state is doing electronically. There is currently a prompt that when you make a federal payment it asks you if you want to make a state payment and if the answer is yes, a popup window appears with the state's website. The IRS is working to integrate making it more convenient to make federal and state payments at the same time.

Leonard asked would there be one site to disperse the funds to both the state and federal. Actions: Larry will get more information to the committee on this issue.

Questions: How is the IRS handling states that don't have state taxes but has unemployment issues? Larry replied that they have not figured the complexity of this issue out as of yet.

Margie asked about Payroll tax reporting?

How is EFTPS being communicated to the small business owners? Larry replied that there is an extensive communication campaign mostly targeted to the tax professionals because over 80% of dealings with small businesses are by third parties. There is a lot of publications in national magazines, IRS websites, TV and radio ad spots.

Margie talked about getting the word out. Payroll tax workshop is almost complete. There is a piece in their about EFTPS.

Leonard asked what workshop would entail.

The workshop will consist of three parts on CD ROM;

• Federal Payroll taxes
• State Taxes
• State Unemployment Insurance

Issue Committee Report
Denise reported for the Deposit Subcommittee: Met on July 9th to discuss distribution. Angela Kraus, has agreed to distribute it to stakeholder partners in the IRS at the small business forums and asking these associations to distribute them to their associates. The group has also agreed to do 10 personal interviews with small businesses. Mary reported that surveys have started to trickle in. Next subcommittee meeting will be in August; however, no date has been set.

Steven reported for the Reporting Subcommittee: This subcommittee dealt with two questions. 1. Check box authorization on payroll taxes. 2. Movement to electronic filing. Each panel member did 10 oral interviews. The results of each survey have been sent to Leonard.

Action: Steve will email the survey results to Mary.

The results of the survey are what the committee expected them to be. Business owners would not be opposed to allowing their preparers to discuss their payroll tax returns with the IRS. What was surprising is the lack of education surrounding the issue of electronic filing. Most business owners were not aware of electronic filing. Those that were aware of electronic filing said that cost would be the factor. They would only participate if the software were free. When asked on the survey, which they would prefer – per use fee or a one-time enrollment fee – the response was neither. Jim interjected that the state of Ohio has gone to electronic returns for sales tax. The software is free. An individual can download it off of the state website. However, it has not been successful because of the software itself. Many people are still sending in paper returns. Margie related that she was recently at a meeting with representatives of states. Many states are going to mandate filing of returns electronically because they can't afford the processing of paper.

Steve said that one of the concerns raised by those that they interviewed was just to understood payroll returns. This was the same response whether a business owner filed electronically or by paper. Most of these businesses did not use a payroll service or had a dedicated employee that prepared the payroll taxes. Most business owners did their own payroll tax preparation.

The second survey went to practitioners. The results show that practitioners would not find it burdensome to sign payroll returns. Those that expressed concern were worried about any risk or liability in doing so. Most preparers do not use electronic filing to file payroll returns. The number one reason was the cost associated in doing so. The interest was to provide the software at no cost.

Margie addressed the problem of providing free software. The IRS is required by congress to allow software companies to produce the software to sell it to people. The IRS has years of research that shows that the main problem is cost. At one time, the IRS looked into giving practitioners a credit or to offset the cost of buying the software. The minimum amount of credit the IRS could give would not be cheaper than processing the paper.

Steve related that in reporting payroll, 38% of business do payroll reporting themselves, about 40% have a tax professional, 16 % have someone in house do them and the remainder have a payroll service

Leonard reported for the Federal/State subcommittee. Just about finished with survey and would like to have a subcommittee teleconference with Margie.

Annual Report
Leonard asked that each subcommittee email him with what should go into the annual report. The due date for this assignment is August 22nd.

Next Meeting
By consensus the next meeting is scheduled for August 28th at 3pm Eastern Time.

Conclusion
Leonard asked if there were any comments from the public. No public comments at this time. Leonard asked if there was any other business? No other issues to attend to. Leonard closed the meeting.