Corporate information reporting proposals and other initiatives to improve the administration and enforcement of employment taxes.

On June 8, 1993, Tax Executives Institute testified before Congress on the Clinton Administration's proposal to require businesses to file information returns in respect of payments to corporate service providers and other proposed to improve the administration and enforcement of employment taxes. The Institute's testimony was presented by TEI President Bob Perlman at a hearing before the Subcommittee on Commerce, Consumer, and Monetary Affairs of the House Committee on Government Operations. The written statement that TEI filed with the subcommittee - which was prepared under the aegis of TEI's Federal Tax Subcommittee on Payroll and Other Federal Taxes (whose chair is Clifford H. Omo of Mobil Administrative Services Company) - is reprinted below.

1. Introduction

   Thank you, Mr. Chairman. I am Robert H. Perlman, Vice President of Taxes, Licensing, and Customs for Intel Corporation of Santa Clara, California. I am also President of Tax Executives Institute, on whose behalf I appear today. I am accompanied today by Michael Murphy, the Institute's Executive Director, and Timothy McCormally, our General Counsel and Director of Tax Affairs.

2. Background

   Tax Executives Institute (TEI) is an organization of nearly 4,900 corporate tax professionals who are responsible for managing the tax affairs of the largest 2,400 corporations in the United States and Canada. TEI is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike.

   TEI's members represent virtually every segment of industry, and the companies they work for are subject to the full range of employment tax and information reporting obligations (as employers, as both payers and payees, and as service providers and enterprises that contract for services). Although the companies represented by TEI's membership tend to be larger rather than smaller companies - indeed, a significant segment of the membership are employed by companies that are subject to continual audit as part of the Internal Revenue Service's Coordinated Examination Program - the Institute recognizes that the effective administration and enforcement of the Code's employment tax rules, through information reporting and otherwise, require a cost-effective partnership between businesses (large and small) and the IRS.

   We believe that TEI's diversity and the professional training of our members - coupled with Executive Director Mike Murphy's extensive experience with the IRS (thirty years of service including five as Deputy Commissioner) - enable us to bring an important, balanced, and practical perspective to the issues raised by the Subcommittee's hearing. We understand the challenges confronting both taxpayers and the tax administrator in developing constructive enforcement strategies that do not unduly burden already compliant taxpayers. We are ready to work with the Subcommittee in improving the current system.

3. General Comments

   TEI applauds the Congress's and the Administration's desire to target pockets of significant noncompliance and to take appropriate actions. We are proud of our record of working with the Subcommittee, IRS, Department of the Treasury, U.S. General Accounting Office, and congressional tax-writing committees in devising and fine-tuning diverse strategies for enhancing compliance in a cost-effective and equitable manner. In particular, TEI supports the Subcommittee's efforts to craft focused proposals to improve the administration and enforcement of employment taxes.(1) We are especially heartened by the Subcommittee's willingness to listen to taxpayer recommendations concerning H.R. 5011 (which then-Chairman Barnard introduced last year), and commend the Subcommittee for holding this hearing.

   Mr. Chairman, the principal focus of TEI's testimony today is the proposal to expand information reporting to payments to corporate service providers. Such a proposal was included in H.R. 5011 last year, and was incorporated into the President's tax bill earlier this year. The proposal is now embodied in section 14251 of H.R. 2264, which was passed by the House of Representatives on May 27, 1993.(2) The Institute understands and appreciates that the Subcommittee's interests extend beyond the corporate information reporting proposals, and we are supportive of many of the Subcommittee's goals. For example, we applaud the objective of de-emphasizing the independent contractor-employee classification issue and focusing on ways to increase compliance among the independent contractor population. Moreover, although the Institute has not yet formulated a position on H.R. 5011's proposed changes to section 530 of the Revenue Act of 1978, we do support the statutory clarification of the tax law's worker classification rules and see benefit in making section 530 part of the Internal Revenue Code. We also support the thrust of many other provisions of H.R. 5011 - which range from limiting a payer's liability for worker misclassification (especially where all required information returns have been filed) to initiating a public information campaign concerning payer and payee obligations.(3) If desired, the Institute will respond in writing to the Subcommittee's questions about these other proposals.

   Before turning to our specific concerns about the corporate information reporting proposal, TEI wants to acknowledge the Subcommittee's willingness to work with taxpayers to develop alternatives by which taxpayers' legitimate concerns can be assuaged, payer and payee burdens can be minimized, and the IRS's compliance objectives can be furthered. For example, the Subcommittee has taken a leadership role in recognizing the need for a computerized, telephone-based verification system for taxpayer identification numbers - a program TEI supports as a tool of payer empowerment. It has also recognized the desirability of developing one or more exemptions to corporate information reporting to minimize burden without compromising the goal of compliance. We view this hearing as merely one part of the Subcommittee's overall role in developing a workable approach to the corporate information reporting program.

4. Comments on the

   Administration's Proposal

   1. Overview

      President Clinton has proposed that payments made to corporate service providers be generally subject to information reporting. The Administration's "service industry noncompliance initiative" (or SINC), especially as it emerged from the House Ways and Means Committee and was passed by the House of Representatives, is similar to the following recommendation from the Subcommittee's November 1992 report:

      The current information return reporting requirements and the corresponding matching program should be expanded to include nonemployee compensation payments made to corporations. The IRS Commissioner should be delegated regulatory authority to exempt corporations and classes of corporations from information reporting and/or matching of information reports with corporate tax returns if the IRS finds it unnecessary. (H.R. Rep. No. 102-1060, at 16.)

      The key elements of the proposal are these: (i) the current (general) exemption from information reporting for payments to corporate service providers would be lifted, but (ii) the IRS would retain authority to exempt certain types of payments or types of payees where exemption would not undermine compliance.

   2. Policy Concerns

      about SINC

      ...