April 16, 1997

Small Business Still Not Ready for Mandatory Electronic Tax Filing,
According to the National Association for the Self-Employed

WASHINGTON, D.C. -- Small businesses are still unprepared for a mandaterequiring them to file their payroll taxes electronically by July 1, 1997, setting up the program for near failure, said the National Association for the Self-Employed (NASE) today in testimony to the House Ways and Means Subcommittee on Oversight.

The association, which represents the self-employed and the smallest of small business, recommended that the program remain voluntary, as in legislation introduced in the Senate this week (S. 570) by Senator Don Nickles (R-OK).

On July 1, 1997, all businesses that pay $50,000 or more in payroll taxes will be required to file their taxes through the Electronic Federal Tax Payment System (EFTPS). Businesses with about ten employees could be required to use the system.

The original EFTPS deadline was January 1, 1997, but realizing the program was unworkable, House Ways and Means Committee Chairman Bill Archer (R-TX) and other committee members spearheaded legislation to delay the date. However, the problems that motivated the delay have still not been resolved.

Although the IRS reports that it has received over 840,000 EFTPS enrollment applications, "it is the NASE's understanding that only a small percentage of all businesses enrolled in the EFTPS program are actually using the program to make electronic transmissions," said NASE President Bennie L. Thayer. "We believe that the business community continues to be confused even today with all aspects, details, and requirements of the EFTPS program. And unfortunately, today's level of confusion appears to be very comparable to the high degree of confusion which existed last year among business owners."

The NASE cited several problems with the program, including:

• Automated Clearinghouse (ACH) debit method (allowing small businesses to file electronically without charge) is only available through two banks, NationsBank or First National Bank of Chicago; small businesses want to use their local community banks.
• ACH credit method (allowing small businesses to pay their taxes electronically through a local bank) is still being reviewed by small banks, leaving their small business customers still questioning costs and details.
• The IRS appears to favor the ACH debit method, which might lead many small businesses to drop their local community accounts and signing up with NationsBank or First National Bank of Chicago.
• Paper coupon system provides sense of security through having tax records on paper.

"The NASE fears that the IRS will use the traditional compliance weapon -- tax penalties -- to make the EFTPS program work beginning July 1, 1997," Thayer concluded. "But, tax penalties will not make a poorly designed system work. Small businesses are already weary of EFTPS. Forcing them into it, particularly if EFTPS fails to meet expectations, will only intensify public skepticism and opposition.

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