WASHINGTON (AP) _ The Internal Revenue Service wants to free small businesses from a requirement that they file computerized tax returns, IRS Commissioner Charles O. Rossotti said today.

The proposal drew plaudits from critics who for three years have argued the electronic-filing rule ties up managers' time and drives up costs. IRS officials compare it with making automatic bill payments, saying it eliminates traditional coupon-and-check paperwork and allows deposits by telephone, personal computer or bank.

``While electronic payment of taxes is increasingly popular due to its speed and convenience, the decision to raise the threshold requiring the use of EFTPS shows understanding and flexibility for the needs of smaller businesses,'' said Bennie L. Thayer, president and chief executive officer of the National Association for the Self-Employed.

Small businesses that currently pay more than $50,000 in payroll taxes must use the Electronic Federal Tax Payment System; the IRS proposes to raise the threshold to $200,000, beginning next Jan. 1.

Rossotti said about 9 percent of businesses will be required to use the electronic system, but he predicted many more would elect to continue to do so. More than 2 million taxpayers use the electronic payment system, which has taken in more than $2 trillion in its three-year history.

``We believe that most of the businesses that are currently using the system will continue to do so because they find it easier to use,'' Rossotti said.

Missouri GOP Sen. Christopher Bond, Small Business Committee chairman, urged the government to continue to waive penalties on businesses that still must file electronically. The IRS said Monday it would waive penalties from July 1 through Dec. 31.

``Even with the new more reasonable threshold, businesses should not be penalized if they make a mistake the first time they try to use the Electronic Federal Tax Payment System,'' Bond said.

A public hearing on the proposed regulations is set for May 11.