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IRS gets serious about business
tax e-filing
By Jennie L. Phipps •
Bankrate.com
The Internal
Revenue Service has been trying to persuade businesses to adopt
a high-tech method of sending in payroll taxes for the past five
years.
But lots of people -- even those who love technology
-- have been hard to convince because of the reputation of the IRS
as a bureaucratic Godzilla.
Initially, the IRS wanted any business that
paid more than $20,000 in aggregate deposits to use the Electronic
Federal Tax Payment System (EFTPS), but the protest in Congress
and among business organizations was so fervent that the agency
backed off.
So this is the first year that the IRS actually
will assess a 10 percent penalty against businesses that are required
to use EFTPS but fail to do so.
Under revised requirements, if your total deposits
of all taxes during a calendar year exceed $200,000 -- not a huge
amount if you pay corporate income taxes and have a couple of highly
compensated owners -- you are required to use EFTPS beginning in
the second succeeding calendar year. In other words, if you made
$600,000 in profit or if you had $1 million in payroll in calendar
year 1999, you will be required to use EFTPS beginning in January
2001.
Once you meet the requirement to use EFTPS,
the IRS demands that you continue using the system even if your
deposits in future years drop below the threshold amount.
To enroll and get a password, or just to get
the forms and the free software required for PC filing, call either
of the two banks that handle the electronic payment system for the
Treasury Department. They are BankAmerica,
at 1-800-555-4477; or Anexsys,
a subsidiary of Bank One and Mercantile Bank, at 1-800-945-8400.
Have your tax identification or Social Security number ready. Or
get your accountant to handle it for you.
Lynn M. Koster, a certified public accountant
and a manager in the assurance services group of Meaden & Moore
in Cleveland, explains that when you sign up, you'll have a choice
of two ways to pay:
- Under one system, the taxpayer authorizes
BankAmerica or Anexsys to withdraw money from the taxpayer's bank
account. At the time the taxpayer issues that instruction, he
gets an acknowledgment number. From that point on, the treasury
financial agents are responsible for processing the electronic
transfer. If BankAmerica or Anexsys doesn't transfer the money
in a timely way, there's no penalty to the taxpayer. Of course,
the amount of the transfer has to be correct and you have to have
enough money in your account.
- Under the other option, the taxpayer instructs
his bank to credit the treasury's account at the Federal Reserve
Bank with the amount of the tax deposit. With this system, the
taxpayer remains liable for the timeliness of the payment, even
if the delay is caused by the bank or the Automated Clearing House.
Koster recommends the first option. She says
that initially, many of her small-business clients were skeptical
and felt more comfortable handing the job over to their banks. But
as the system has become old hat, she thinks these concerns are
not well-founded and there is more protection from penalties using
the debit method. Also, banks charge for the service, while the
government doesn't.
In two years, Koster says she's only had one
client have a problem with the debit system and that was because
the client himself accidentally authorized the IRS to take a payment
twice in one month. Koster was able to recover the overpayment without
any problem, but she does urge anyone who uses the system to take
a few precautions.
- Open a separate account and transfer in only
enough money to pay the taxes. "If there's an error, the
money just isn't there," she says.
- Ask for a new Personal Identification Number
any time an employee involved in paying the taxes leaves.
- Keep good records. File the acknowledgment
number from each transfer and jot down the date and time it was
made.
Phil Brand, director of KPMG Consulting, has
studied electronic tax administration extensively. He thinks the
IRS has been very smart about its approach to online filing.
"They've decided they're not going to force
this process," he says. Most small businesses have the opportunity
to participate or not participate, so I would urge a small business
to take its time and be comfortable. Ultimately, though, I think
most people will decide electronic payment of taxes is the way to
go. It's so much easier."
Jennie L. Phipps is a contributing
editor based in Michigan
-- Posted Aug. 10, 2000
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