WEEKLY SENATE UPDATE

A nationwide issue, the most common tactic of predator scam-artists is engaging in the unscrupulous practice of collecting payroll taxes and pocketing the money without paying the Internal Revenue Service (IRS). Because remitting payroll taxes to the IRS imposes a tremendous burden on small businesses, both in terms of calculating the tax and completing the necessary paperwork, small businesses often engage the services of a payroll/accounting firm to assist them. In most cases, the small business transfers the taxes owed along with the appropriate FICA or Medicare tax to the payroll firm, which then pays the IRS on the client's behalf for a fee.

Recently, the U.S. Department of Justice and the IRS have accused payroll/accounting firms in at least three states, including Maine, of engaging in the fraudulent act of not only partaking in this particular scam, but of submitting false mailing information for their clients to the IRS, thereby ensuring that small firms in arrears with the IRS would not receive notice that their taxes were overdue.

As Chair of the Senate Committee on Small Business and Entrepreneurship, I became alarmed when I learned of these federal investigations, especially when small business firms in my own home state were being targeted. As detailed by the joint Justice-IRS investigation, I was deeply concerned that nearly $8 million in withheld payroll taxes over a period of five years was attributed to one fraudulent firm in Saco. This one firm’s actions - which have since been dismantled - affected hundreds of taxpayers throughout Maine, and placed multiple small businesses in financial jeopardy.

With a seat on the Senate Finance Committee, I was able to work within the U.S. tax code to reduce the opportunity for scam-artists to further harm small businesses. I was pleased that the "Tax Administration Good Government Act" was approved by the full Senate in late May, providing critical protection for our nation’s "economic engine". I was pleased to author key provisions of the bill, which will provide new relief for small businesses when enacted.

Specifically, the "Tax Administration Good Government Act" will identify payroll agents such as a payroll/accounting firms as "responsible persons," which will enable the IRS to assess 100 percent of penalties against those firms themselves. Furthermore, by giving the IRS such authority against the payroll agents, the IRS would not automatically re-assess the taxes due against the small business taxpayer, which paid what they thought was their payroll tax obligation in good faith.

Additionally, the bill imposes a requirement that any payroll agent who collects and agrees to pay withheld payroll taxes must register with the IRS. This new requirement would place the IRS on notice that these entities are responsible for turning over certain withheld payroll taxes. In addition to registering with the IRS, this amendment could require payroll agents to be bonded so that there is insurance for paying these payroll taxes should these agents breach their fiduciary duty and fail to turn client's tax payments over to the government.

Now pending in the House of Representatives, passage of this common-sense approach to protect taxpayers will also serve to protect innocent small businesses from bankruptcy and financial ruin. It is vital to the long-term prosperity of our nation that we instill state and federal tax protections that will benefit our small businesses and, thus, preserve our economic engine is kept running smooth.