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New Tax Plan Could Jeopardize Small Business Owners' Privacy

The Bush administration is proposing a new tax collection program that would force credit card companies to report merchants' income to the Internal Revenue Service. The plan has come under fire from privacy groups, who say it will create another private sector database tied to Social Security numbers at a time when ID theft experts are urging companies to wean themselves from the use and collection of such information.

The proposal is spelled out in the White House's FY09 federal budget request for the U.S. Treasury, which the administration says includes some 16 changes to existing tax law designed to collect more than $36 billion in new revenues over 10 years.

According to an analysis by the Center for Democracy & Technology, the proposal would require credit card companies to report the aggregate transactions of all businesses that have merchant accounts with the card issuers. The reports to the IRS would be tied to each merchant's taxpayer identification number. The problem is, in many cases, small businesses use their owners' Social Security numbers as their taxpayer ID.

CDT called the proposal "disturbing" because it said it "would require credit card companies to turn over to the government large amounts of data about their merchants without any reason to believe that they have broken any laws."

"The Treasury Department has done little to justify why Congress should impose this substantial new burden on sole proprietors and other small businesses," CDT concluded.

The administration proposed a similar plan in last year's budget that would have required Internet "brokers" like Amazon and eBay to collect and report similar data, but the idea met opposition on Capitol Hill and was never included in any implementing legislation.

This latest measure, however, appears to have legs: CDT Vice President Ari Schwartz said he has seen drafts of legislation in both the House and Senate that would implement these specific items from the president's budget. Drafts are currently circulating through the Senate Finance Committee and the House Ways & Means Committee.

Businesses shouldn't be too frightened of this proposal just yet: It is garnering some fairly strong opposition from the National Federation of Independent Business, a powerful lobbying group in Washington.

"We have a lot of concerns with the proposal," said Bill Rys, tax counsel for the NFIB. Rys cited additional costs for businesses as the main source of the group's displeasure over the proposal.

Under an April 5 draft of legislation to implement the measure, viewable here, credit card companies would have to withhold 28 percent of receipts for businesses that do not provide a taxpayer ID number.

But Rys said privacy and security concerns also play a role.

"Privacy and security concerns are a major concern for our members, and we'd definitely want to make sure those got addressed in any consideration of this."

By Brian Krebs  |  May 22, 2008; 4:40 PM ET
Categories:  From the Bunker , U.S. Government  
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