IRS to Companies: Join Information Age

When it comes to paying taxes, more than a million businesses will soon find that mailing their checks to Uncle Sam is no longer good enough.

As of Jan. 1, any company that pays more than $50,000 in federal payroll taxes will have to make its quarterly payments electronically. Large companies already file electronically. By the end of 1999, more than 6 million firms will electronically deposit an estimated $1 trillion in personal-income and Social Security taxes that employers must withhold.

For the federal government, it's more than just an attempt to jump on the information-age bandwagon. Forcing business to pay taxes by computer makes good economic and environmental sense. The Internal Revenue Service (IRS) may save more than $400 million over the next four years by eliminating the more than 80 million paper deposit coupons used each year.

But for the private sector, the transition may not be easy.

"I have to file electronically, and I haven't the vaguest idea how to do it," says Austin Treworgy, president of Treworgy Furniture Company Inc., a Brunswick, Maine, store.

The IRS has tried to alleviate such concerns. In July, IRS commissioner Milner Richardson said the agency will not penalize businesses before July 1997 for failing to comply.

All the same, accountants are busy helping their clients prepare for change. "It costs us extra money as preparers to set up equipment and software to participate," says Mark Misselbeck, tax manager at the Boston accounting firm Greene, Rubin, Miller & Pacino. "All the benefits accrue to the government. All the costs accrue to us."

DESPITE some ruffled feathers, businesses may benefit, too, in the long run. "I don't look at it as a problem," says Stephen Bonder, partner at Gerald P. Bonder & Co., an accounting firm in Boston that advises small businesses. "In fact, it's going to be easier than what companies do now."

Businesses will electronically zap their tax payments to the IRS using banks or payroll services as intermediaries.

The new tax rule is part of a larger movement by the federal government to streamline the flow of funds and information - and, of course, to save money. In the April budget compromise, for example, Congress included a provision that will force the government to make almost all its roughly 1 billion payments a year electronic starting in 1999.

Instead of sending out paper checks, vouchers, or coupons for benefit programs such as Social Security and welfare, individuals will be issued electronic-benefit transfer cards - allowing recipients to withdraw funds at bank ATM machines or point-of-sale terminals at supermarkets or retail stores. The change could save hundreds of millions of dollars, since it costs about 43 cents to process a check and 2 cents to process an electronic transfer.

The tax change, similarly, is a big money-saver. It "will eliminate paperwork ... while also increasing the speed, efficiency, and accuracy of revenue collection," says Russell Morris, commissioner of the Treasury Department's financial-management service.

But the government faces its own transition problems: Some experts say Washington may have trouble handling the surge of questions this fall about the new system. "One question may be whether the IRS can handle the number of calls coming in the fourth quarter," Mr. Bonder says.

Paul Ferm, who heads the federal government banking division at NationsBank, says he is not worried. The bank is helping to build the tax-system's hardware and software for the Treasury. System reliability, he says, is "not a concern."