The U.S. Senate has passed legislation to give more protections to businesses victimized by payroll services companies that failed to pay their clients' federal and state taxes or committed other fraudulent acts.
The legislation, championed by Maryland Sen. Barbara A. Mikulski, comes in the wake of accusations last year against Bel Air-based payroll services firm AccuPay Inc. for failing to pay state and federal tax employee withholding taxes for as many as 600 clients.
According to Mikulski's office, provisions in Omnibus Appropriation Act of 2013 approved by the Senate last week will provide protections to small businesses by requiring the IRS to send dual notification to a business when its address has been changed by a third party.
The legislation will also provide for assistance to defrauded businesses that need relief from tax liability by requiring the IRS to give greater consideration to what are known as Executive Tax Administration Offers of Compromise.
In April 2013, Mikulski held a roundtable with Bel Air's DuClaw Brewery, which had filed a claim of tax fraud against AccuPay, and other local small businesses to discuss the impact of payroll services tax fraud.
Following the meeting, Mikulski introduced legislation, The Small Business Tax Fraud Prevention Act, to protect small businesses from becoming victims of payroll services provider fraud.
"I fought to get common-sense reforms into Omnibus to protect small businesses from becoming victims of tax theft," Mikulski said in a statement. "I took this on after meeting small businesses in Maryland who were scammed by fraudulent payroll services providers that took their money and didn't pay the IRS."
Mikulski said she is partial to small businesses – growing up her grandparents owned a local bakery and her father ran a grocery store.
"Maryland's small businesses are the backbone of our economy," Mikulski said in the statement. "I learned how these businesses help weave social fabric by hiring local workers and investing in their communities."
Mikulski said these reforms will protect small businesses from tax theft and reduce the red-tape to ensure these businesses are not victimized a second time.
Legislation at the state level
Maryland legislators are also pushing for reform of the payroll services industry at the state level.
The 2013 Maryland General Assembly passed Senate Bill 1068, sponsored by State Sen. Barry Glassman, who represents Northern Harford, which established a commission to study and determine if Maryland should regulate private payroll services companies.
The Commission to Study the Regulation of Payroll Services worked on reviewing Maryland's payroll services industry, its role in the tax payment system and how Maryland compares with oversight, bonding and licensing with other states.
On Jan. 15, the commission completed its review and presented three recommendations to State Sen. Thomas M. Middleton, chairman of the Senate Finance Committee, and Del. Dereck E. Davis, chairman of the House Economic Matters Committee.
The commission recommends that the comptroller implement an electronic verification system that allows employers to use an online tool to verify that their taxes have been paid. A similar tool is already in use at the federal level with Internal Revenue Service.
The commission also recommends that the comptroller should send notices confirming a change of employer's address to both the old and new addresses and that the comptroller, Department of Labor Licensing and Regulation and Department of Assessments and Taxation work alongside the payroll services industry "to increase employer awareness of risks associated with using third-party payroll service provider."
According to the commission, additional resources will be needed for the Comptroller's Office to implement the first two recommendations "in a timely fashion." The commission's final report states that "even with additional resources, sending notifications to an employer's old and new address may be extremely difficult to implement in the comptroller's legacy tax system."
Glassman said this week he is drafting a bill to implement the commission's recommendations.