SB/SE Payroll Tax Issue Issue Committee Meeting Minutes

October 3, 2003
Grand Hyatt Hotel
Washington, D.C.

Attendees:

• Abraham, P.E., James Vice-Chair, SB/SE Payroll Taxes
• Agena, Clayton
• Cassady, Charlotte
• Gallegos-Bodle, Yvonne
• Hermann-Pariente, Maria
• Johnson, Keith
• Meyer, David
• Perros, Theodore
• Quarles, Nancy
• Silva, Charles
• Steinberg, Leonard Chair SB/SE Payroll Taxes
• Wood, Steven
• Woods, Jr, William (Frank)
• Margie Kinney, SB/SE Program Owner
• Laurie Keleman, Acting DFO
• Mary O'Brien, Program Analyst

Members Not Present:

• Denise Bigger

Welcome/Announcements/Review Agenda
Leonard welcomed everyone. Leonard discussed the status of the issue committee membership. Justin Doucette has resigned from the TAP and the status of Denise Bigger's membership is not known at this time. Two new members joined the issue committee. Leonard introduced Yvonne Gallegos Bodle and Maria Hermann-Pariente. Leonard introduced the rest of the issue committee members and commented on what state they represent. Laurie Keleman was introduced as the acting DFO and Mary Peterson O'Brien as the analyst for the committee.

Updates from the Joint Committee
Leonard discussed the transition from the members of this panel to the members of the new tap at the end of this year. Leonard stated that he would not continue on after this year.

Confirmation of the Chair and Election of the Vice Chair
By consensus, the committee reconfirmed Leonard Steinberg as the chair and elected James Abraham as the committee vice chair.

Roll Call
Quorum is met; fourteen members present.

Updates From Program Owner
Margie stated that she envisions that the Payroll committee will complete recommendations within this next year. The members of the next panel would be able to monitor the recommendations. Margie gave a brief synopsis of the Payroll Committee's focus and the events of the issue committee's first year. Three sub-committees were created. The focus of the subcommittees were issues surrounding Payroll Deposits, issues with Payroll Reporting and issues that deal with the cross over between federal and state requirements. Margie would like the panel to focus this year on recommendations. Then she would like this group to work with people within the IRS and together decide what is feasible and workable. Margie wanted to point out that the committee would make its own recommendations. The IRS may come back and say that it would cost more than is budgeted to enact a recommendation. It is beneficial for the panel to hear what the IRS thoughts are as a reference as the panel is developing recommendations.

Leonard stated that he would like to have all recommendations to Margie by August. Charles said that we would have recommendations earlier due to conflict of vacations. By consensus, the committee decided that it would have all recommendations done by June. Leonard stated that this means a lot of work and coordination to get this done.

Sub-committees
The question of what if any subcommittees should the panel concentrate on for the upcoming year. Margie stated that the Federal State Overlap issue would be the most logical to drop. This subcommittee has more political ramifications. The possibility to deal with the overlap is not as feasible due to lack of funding an each state having different levels of priorities with the fed/state overlap. If the other two subcommittees on Payroll reporting and deposits are kept, this subject could be incorporated into each of these. By consensus it was decided to drop the Federal State subcommittee and keep the Payroll Deposits and Payroll Reporting Subcommittees. Leonard agreed with Margie. Due to his research with both state and federal agencies, budget was a problem. Leonard also stated with interviews of business owners, there is still an interest in combing deposits for both Federal and State.

The committee discussed and came to consensus on what topics each subcommittee would concentrate on for the next year.

Margie stated that the suggestion for check the box initiatives that the reporting subcommittee was working on would be implemented by the IRS. When the business return is filed, the contact name is now going to be on the return and work just like on an individual tax return. The IRS moved very quickly on this recommendation.

Margie discussed the committee's interest in free software. Due to legislation, free software is not in itself a viable suggestion. Congress prohibits the IRS, from development of tax software. The committee discussed other options such as working with software companies to provide the software to first time businesses and small businesses. The committee would also like to explore the idea of free filing.

Margie stated that currently the IRS has a design tem working on the redesign of the Form 941 and asked the committee if they have any interest in giving input to this team. By consensus, the committee decided to work this issue.

The committee discussed the confusion surrounding the filing and reporting of Form W 4. Margie explained that a From W 4 is completed for the following: with a new employee; Advanced Earned Income Tax Credit (EITC); a change in statue (i.e. married to single); and changes in exemptions. A business owner also has to send a form W4 to the IRS if the employee claims more than 9 exemptions. It was discussed that The Department of Health and Human Services require that a From W 4 is filed for each employee through that employee's state. The question was asked: Would it be better if the IRS requires that all Form W 4's be filed for every employee? What about the time frames that all new Form W 4's should be filed? It was decided that the Reporting Subcommittee would work on this issue.

Action: Margie and Mary will get more background information on Form W 4's.

The Payroll Deposit Subcommittee will focus and make recommendations on:

• E-pay
• Education
• Penalties
• Deposit Schedules
• FUTA

The Payroll Reporting Subcommittee will focus and make recommendations on:

• Review of the revised Form 941
• E-file
• Form W-4 reporting
• Education
• Form W-2

Panel members picked which subcommittee they wanted to work on.

Action: Mary will develop a roster for each subcommittee and will email it out with the meeting minutes.

Data Analysis
Margie led a discussion on the results of the surveys. Handout: Analysis of Deposit Survey The sampling was small for the deposit survey. The responses were isolated to a few pockets of the country. This has a tendency to skew the data. Having a database or spreadsheet allows answers to be cross-tabbed to look for correlations from one question to another. The reporting responses were unavailable to put into a database; however, it is extremely beneficial to have oral interviews because other information can be gathered.

What the surveys indicated: We did a good job on focusing on small businesses. The majority of responses from the reporting survey were with employers who have been in business less than 3 years as opposed to the deposit survey where most of the business owners had been in business over 5 years. A high majority of business owners make their own deposits. How they are making them is taking the deposits to the bank. Indicating that they are taking time out of business hours to make federal and state deposits. There is a real opportunity for electronic deposits. Leonard stated that he and other business owners he talked to were hesitant to use EFTPS because they didn't trust it. Since he joined TAP, he has used EFTPS and finds it superior to hand delivered deposits. One of the benefits is the tracking system of payments made. Charles also reported that in his experience, people don't trust payments made electronically.

Theodore stated that the system is so complex. He sees that it is difficult for the average business owner to understand the forms. This is especially true for foreign tax returns. Leonard stated that in his area, they have been discussing the problem with Congress passing new legislation and the time frame that the IRS has to incorporate these changes into the new Forms and Publications.

Margie stated that the responses to the question: “What is the most difficult part about payroll issues?” was other. Out of the responses, most of the responses was the time involved in reporting and depositing.

Margie would like to continue with the surveys. The surveys are a good instrument. It was suggested to maybe combine the surveys and do more cross analysis. The committee discussed the problem with sending the survey's out compared to interviews. It was decided to take the past into consideration and each subcommittee would decide on next steps.

Sub-Committee Breakouts
Due to time constraints, the committee agreed by consensus to do subcommittee report outs at the next teleconference.

Meeting Scheduling
By consensus, the committee decided on meeting dates for the two face to face meetings and the dates and times for the teleconferences.

Action: Mary will do a cost analysis for the locations picked.

• First face-to-face Meeting: January 8th through January 10th
  Possible Locations: Las Vegas, Los Angeles, and San Diego
• Second face-to-face Meeting: May 6th through May 8th.
  Possible Locations: Denver

Teleconferences
By consensus, the committee agreed to meet the first Thursday of every month (except in the months of face-to-face meetings) at 3pm ET.

Action: All materials that need to be distributed as well as the agenda needs to be to Mary by the Friday before the meeting. Mary will email the agenda and attachments by the Monday before the meeting.

Action: Mary will make a new committee roster and email it to all.

November 6th, 2003 will be the first meeting.

Mary handed out the Evaluations for everyone to complete. Evaluations completed and comments were made that this was a very productive meeting. Leonard asked if there was any other business to discuss. No other business reported. Leonard adjourned the meeting.