IRS delays penalties, grants businesses a learning period

WASHINGTON (AP) Faced with growing pressure from Congress, the IRS today said it would postpone penalties for another six months on businesses that haven’t signed up for electronic deposit of their taxes.
Until today’s announcement, the IRS had set a July 1 deadline for some 1.2 million small businesses to begin electronic filing of their federal employment and business taxes, or face a penalty of 10 percent of their tax bill. The electronic filing deadline applies to businesses with more than $50,000 in federal payroll taxes in 1995.
“We understand that many taxpayers who have not enrolled … may need more time to learn about making electronic tax payments,” said Michael P. Dolan, acting Internal Revenue Service commissioner. He referred to the electronic federal tax payment system, which is designed to receive federal employment taxes electronically, and eventually capture income, excise, corporate estimated taxes and Social Security taxes.
The IRS said it will waive the 10 percent penalty through Dec. 31 if businesses don’t make the electronic hookup, but said they have to still make timely deposits using the existing paper tax coupons.
The IRS announcement comes after Senate Republican leaders, including Senate Majority Leader Trent Lott, R-Miss., asked for a one-year delay on the penalties. In a letter last month to the IRS, Lott and Senate Finance Committee Chairman William V. Roth Jr., R-Del., expressed concerns that the electronic system wasn’t fully operational and that the 10 percent penalty was too severe.
The IRS has been phasing in the electronic federal tax payment system since 1994, beginning with companies that deposit more than $47 million in employment taxes a year.