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WASHINGTON - A little-known provision in the government's supplemental appropriations bill could once again defer the electronic filing of payroll taxes by an estimated 1.2 million small businesses. The U.S. Senate added a clause to the appropriations bill, which passed May 8, that would prohibit the Internal Revenue Service from assessing penalties on small businesses that are unable to file their payroll taxes electronically. Under current mandate, small businesses that pay more than $50,000 in yearly payroll taxes must file their taxes electronically starting in July, or face a 10 percent penalty for using the current paper forms. "Our members believe this is one issue of extreme importance, and having an extension for this mandate will help things significantly," said Todd McCracken, president of National Small Business United, a Washington-based small-business advocacy group. Key senators drummed up support for the small-business provision during the past two weeks. Sen. Don Nickles, R-Okla., said a temporary extension of the IRS mandate will give him time to pass legislation that would make electronic filing of taxes a voluntary measure, not mandatory, for businesses. "This amendment gives us the opportunity to permanently repeal the unnecessary mandate, which represents yet another government effort to micromanage our nation's small business," Nickles said. Also, Sen. Christopher Bond, R-Mo., chairman of the Senate Small Business Committee, is fighting to keep the amendment in the supplemental appropriations bill, which soon will be voted on by the House of Representatives. The bill will then go to the conference committee, where a final version will be developed. A Nickles staffer said it is unclear whether the extension of the electronic filing mandate will face opposition from House members because of a possibility of a shortfall in the Treasury. "Everything will depend on the make-up of the conference committee and how important they think this issue is," said the staffer. The Electronic Federal Payment System was mandated by the 1993 North American Free Trade Agreement Implementation Act. The purpose was to reduce the paperwork burden on businesses and expedite payments to the U.S. Treasury. The electronic dispatch of payments was expected to raise $3.3 billion in tax revenue between 1994 and 1998. Testifying before a subcommittee in April, Rep. Doc Hastings, R-Wash., said the Treasury is doing just fine without small businesses chipping in. According to a Department of the Treasury letter sent to Hastings, the Treasury has had a revenue increase of $2.89 billion because of the electronic fund transfers developed in 1994 for big businesses. "This amount does not include the 1.2 million taxpayers that are scheduled to begin using electronic fund transfers for their payroll obligations," Hastings testified. "This clearly demonstrates that we will far exceed the goal of accelerating revenue collections by $3.3 billion during the 5-year phase-in." Hastings, in a move similar to Nickles' in the Senate, introduced legislation in the House that makes electronic filing voluntary for small businesses.