LIHEAP -- (Senate - July 25, 2008)
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PAYMENT CARD AND THIRD PARTY NETWORKING
Mr. KERRY. Mr. President, I would like to engage in a colloquy with Chairman BAUCUS and Senator SNOWE about the payment card and third party networking information reporting provision. I am concerned about the impact this proposal will have on small businesses. It is my understanding that the proposal included in the Housing and Economic Recovery Act of 2008 is a modified version of the administration's proposal that was included in administration's budget for fiscal year 2009. I ask the Chairman, can you explain who bears the reporting requirement and how the provision was modified?
Mr. BAUCUS. The provision requires the bank, third party network, or third party processor that settles credit card payments with the merchant to report annually to the IRS and to the merchant the gross amount paid to the merchant during the calendar year. These reports may be made electronically. The effective day of the proposal was modified to apply to information returns for calendar years beginning after December 31, 2010. Back-up withholding provisions apply to amounts paid after December 31, 2011. Back-up withholding is required only if the paying institution does not have a valid taxpayer identification number on file for the merchant. In addition, for third party networks, there is an exception for transactions of $20,000 or less or 200 transactions or less.
Ms. SNOWE. I am also concerned of the impact of this proposal on small businesses. Senator KERRY and I both want to make sure the additional tax compliance burden on small businesses will be minimal and the new information that will be collected will be protected. Can the chairman expand upon how this information will be used by the IRS?
Mr. BAUCUS. The IRS indicates that it intends to implement the information reports in a graduated way that will give the agency time to use the amounts on a 1099 in a manner to accurately and efficiently identify cases with higher likelihood of noncompliance, potentially sparing compliant businesses from unnecessary audits. Existing privacy rules will apply to the information reports required under this proposal.
Mr. KERRY. The provision requires reporting to be made on a calendar year basis. It my understanding that many retailers operate on a fiscal year basis and I want to make sure that this provision will not create an unnecessary burden on small retailers because they will be required to reconcile differences.
Mr. BAUCUS. The provision provides the Secretary of Treasury with the authority to prescribe regulations or other guidance to implement this provision and prevent the reporting of the same transaction more than once.
Ms. SNOWE. I want to make sure that the benefit of improved compliance from information reporting is outweighed by the cost of compliance. Can the Chairman expand on the benefits of the proposal versus the burden?
Mr. BAUCUS. The benefits of this proposal are substantial. IRS research shows that there is 46 percent compliance rate when there is no information reporting and over 90 percent compliance when there is information reporting. There will be upfront programming costs which will be spread over a number of merchants and a period of years, which should help to minimize the costs to individual merchants.
Mr. KERRY. I commend the Senator's efforts on trying to reduce the tax gap and improving the underreporting of income. I would like to continue to work with the Senator on this issue to ensure that the provision is implemented in a manner that is not burdensome to small businesses.
Ms. SNOWE. I concur with Senator KERRY, and appreciate the Senator's efforts on addressing the tax gap. While small businesses should not be excused from meeting their tax obligations, I also want to ensure that tax gap proposals such as this one meet a delicate balance of improving compliance in the least burdensome manner possible for the majority of small businesses who are already in compliance. I look forward to working with the Senator on the implementation of this provision in a manner that does not negatively impact small businesses.
Mr. KERRY. Mr. President, I would like to engage in a colloquy with Chairman Dodd to clarify the intent of section 2203 of the Housing and Economic Recovery Act of 2008. This provision amends section 207 of the Service members Civil Relief Act, SCRA, 50 U.S.C. App. 527, to limit the maximum interest rate for mortgages that service members obtain before their military service, during the period of their service and one year thereafter. It has come to my attention that there is a drafting error in this section that does not reflect the intent of the Congress.
In subsection (b), paragraph (1), the phrase, ``in excess of 6 percent'' should have included the words, ``per year.'' This would reflect the intent to limit the maximum rate of interest for service member obligations to 6 percent per year during the period of military service, and in the case of mortgages, for an additional year after service. Does the Chairman agree that the words ``per year'' were inadvertently omitted?
Mr. DODD. Yes. It is my intent that section 2203(b)(1) should read 'in excess of 6 percent per year `` before subparagraph (A). This would track the existing language in section 207(a)(1) of the SCRA that refers to preexisting obligations or liabilities bearing an interest rate in excess of 6 percent per year. It is not my intent to modify this aspect of section 207(a)(1).
Mr. KERRY. I thank the Chairman for addressing this issue. It is the longstanding understanding of both military service members and lenders that the reduction in interest under this section would be to ``6 percent per year,'' which has been existing law for many years. The provision in section 2203 was not intended to change existing law, other than to extend the interest cap of 6 percent for service members' mortgages for an additional year beyond military service.