Electronic Payment Reporting Used as Offset

June 24, 2008

On June 18, the House Ways and Means Committee voted 22-16 to approve a fully-offset $61.5 billion patch for the alternative minimum tax (AMT) that would be paid for in part by implementing one of the administration's tax-gap proposals, the electronic payment reporting requirement. Until recently, Congress has avoided using any of the administration's tax gap proposals as revenue-raisers due in par to their overwhelming negative impact on small business. However, faced with difficult pay-go budgetary rules, and the goal of passing several keys bills before the end of the session, in appears the push against enacting the tax-gap proposals has come to a halt.

The tax-gap proposal used by the Ways and Means Committee to offset the AMT patch would require information reporting by banks and other institutions on reimbursements to merchants that accept electronic forms of payment. The basic premise of the electronic payment reporting proposal is that a "payment facilitator" would provide the Internal Revenue Service (IRS) and the merchant with an annual, aggregate total of the gross receipts for the individual merchant which had been processed by that payment facilitator.

The bill approved by the Ways and Means Committee would increase the AMT exemption levels to $46,200 for individuals and $69,950 for married couples filing jointly in 2008. Other offsets include taxing carried interest at the ordinary income tax rate instead of the 15 percent capital gains rate, denying the tax code Section 199 manufacturing deduction to certain oil and gas producers, and limiting treaty benefits for certain deductible payments.

Testifying a few days prior to the mark-up, NSBA President Todd McCracken told the House Small Business Committee that the electronic payment reporting requirement proposal would have a negative economic impact and would add additional and unnecessary burdens on already over-burdened small-business owners.

Ways and Means members Reps. Wally Herger (R-Calif.) and Patrick Tiberi (R-Ohio) expressed opposition to using the electronic payments IRS reporting as an offset and had specific issues with one part of the proposal that would require 28 percent withholding until the accuracy of a taxpayers identification number can be identified. Unfortunately, these members concerns were ignored and the legislation is now expected to be considered on the House floor during the week of June 23.

Meanwhile, the Senate is expected to pass a comprehensive housing stimulus bill (H.R. 3221) before the Independence Day recess that could reach the president’s desk by mid-July. Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Charles Grassley (R-Iowa) worked out a tax title to the bill which includes $14 billion in tax incentives, such as a repayable tax credit of up to $8,000 for first-time home buyers and a provision to allow taxpayers who do not itemize their deductions to deduct property taxes of up to $500 for individuals or $1,000 for joint filers.

Once the bill passes the Senate, it will have to be reconciled with the House version. There are early indications the House is preparing some changes, especially over the $14 billion in tax breaks contained in the measure. One controversial proposal that may be removed in the House version is the provision that would deny a new standard tax deduction in the bill for homeowners who do not itemize on their returns in localities that raise property taxes.

Unfortunately, the Senate chose to use the electronic payment reporting requirement as an offset. According to the Senators, the provision would raise $9.8 billion in new revenues over 10 years and would exempt reporting of transactions for $10,000 or less in cases in which a third-party settlement organization handles fewer than 200 transactions.

While NSBA supports efforts to fix the AMT and find ways to stimulate the housing sector, we oppose using offsets that are detrimental to America’s small businesses. In letters sent to the committees of jurisdiction, NSBA argued that Congress needs to realize that the electronic payment reporting requirement will add to the already disproportionately-high regulatory burdens small businesses face. If these offsets are enacted,small-business owners will be forced to spend valuable time and financial resources on record-keeping and outside help to ensure compliance.