President Bush Signs SUTA Dumping Prevention Act
August 11, 2004
On August 9, 2004, President Bush signed into law the SUTA (state unemployment tax act) Dumping Prevention Act of 2004. SUTA dumping refers to various methods businesses may employ to minimize their state unemployment tax liability by the transfer or acquisition of a business, primarily to adjust their unemployment experience and, thus, their contributions. The Act requires states to pass laws governing the transfer of unemployment experience in certain situations, and impose penalties on employers who practice SUTA dumping and business advisers who promote the practice.
Specifically, the Act requires states to strengthen their unemployment compensation laws to provide that (1) if an employer transfers its business to another employer under the same ownership or control, the unemployment experience of the business is also transferred; (2) unemployment experience will not be transferred to a person acquiring a business if that person is not otherwise an employer and the person acquired the business primarily to obtain a lower rate of contributions; (3) unemployment experience shall, or shall or not, be transferred in accordance with regulations prescribed by the Secretary of Labor to ensure that higher rates of contributions are not avoided through the transfer or acquisition of a business; and (4) civil and criminal penalties are imposed on persons who violate or attempt to violate, or who advise others to violate, state laws implementing the preceding requirements. States also must establish procedures to identify the transfer or acquisition of a business for SUTA dumping purposes.
These requirements apply to a state for certifications for payments in rate years beginning after the end of the 26-week period beginning on the first day of the first regularly scheduled session of that state's legislature after this Act becomes law. Furthermore, by July 15, 2006, the Secretary of Labor must submit to Congress a report assessing state actions to comply with these requirements and recommending any additional congressional action necessary.
The Act also gives state unemployment benefit officials access to a current national database of new hires to ensure unemployment benefits are not wrongly paid to those who are working. (H.R. 3463, Laws 2004, applicable as noted.)
The IRS launched the initiative in July and has already contacted 200 organizations, Tax Exempt and Government Entities Commissioner Steven Miller told reporters. The project will continue into 2005 and be incorporated into the IRS's ongoing enforcement efforts, Miller indicated.
Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, whose committee is investigating charities' questionable practices, welcomed the IRS effort. "For too long the IRS has been the dog that doesn't bark when it comes to tax-exempt organizations," Grassley said in a statement. "So it's good to see the IRS pay more attention to this neglected area." Grassley, however, questioned whether current law was strong enough to stop compensation abuses and insider deals.
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