House Small Business Committee Challenges IRS on Frequency of Small Biz Audits
After IRS Commissioner Douglas Shulman had described benefits of the American Recovery and Reinvestment Act (hereafter stimulus law) for small business owners--including improved NOL provisions, bonus depreciation and energy credits--members of the Small Business Committee, led by Chair Nydia Velazquez (D-NY) confronted Shulman with an increase in small-business audits in recent years. 41% more small businesses were audited in 2007 than in 2005 with companies with revenues of $10 to $50 million being particularly hard hit. Meanwhile, audits of companies with revenues exceeding $250 million actually had a significant drop in audits. Other lawmakers on the committee argued that IRS needed to provide more and better help to small business owners with tax questions.
The Linda Beales and Dan Shaviros of the tax blogosphere can legitimately argue that the small business problems looked at in yesterday's hearing occurred while Bush appointees were in the IRS. However, failing to fix concerns of small business going forward would be on the Democrats. One hopes that more lawmakers and top IRS officals will listen more carefully to the concerns of voices such as Nina Olson, past IRS tax onbudsperson.
The Linda Beales and Dan Shaviros of the tax blogosphere can legitimately argue that the small business problems looked at in yesterday's hearing occurred while Bush appointees were in the IRS. However, failing to fix concerns of small business going forward would be on the Democrats. One hopes that more lawmakers and top IRS officals will listen more carefully to the concerns of voices such as Nina Olson, past IRS tax onbudsperson.
posted by Dan Meyer at 11:38 AM
3 Comments:
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As a current IRS agent (and former student of yours at APSU), I find that the reason for the increase in the audits of small businesses is exactly the reason you might imagine - that is where the majority of errors/adjustments are made. The reasons small businesses make the most errors are fairly predictible: 1. Small businesses usually have virtually NO internal control-leaving both intentional and accidental errors abounding within the books. 2. The number of small businesses vs. the number of large businesses as a whole. 3. As mentioned, Congress intensified efforts to reduce the tax gap and the effort to make use of government resources as efficiently as possible (please keep the snickering to a dull roar here) to get maximum dollars brought in vs. dollars spent. 4. Spending additional resources to promote voluntary compliance among one of the largest tax bases in our government - small businesses -and the additional publicity it brings (i.e. this article/blog) can be more effective than any single audit adjustment simply by intimidation alone. (Ever notice how these audit and tax fraud articles appear more frequently around filing season? I am sure that is not totally by accident). Believe it or not, I understand the frustration of small business owners-especially in the current economy-of too much regulation and administrative duties to maintain a successful business as I was a small business owner myself before I went over to the dark side. But as a taxpayer myself (and as I am sure anyone reading this post will agree if they are being honest), I feel that each person should pay the correct amount of tax. There are plenty of legal "loopholes" of which to take advantage without allowing manipulations of the books/tax returns to go unnoticed. While the readers of this post may have a small business which is operated entirely correct from an accounting standpoint, I assure you that the majority of businesses get it wrong. And by wrong, I don't mean complicated tax law or accounting debates. Usually my adjustments are made within the first 30 minutes of looking at a company's books. Generally, I make a few of the obvious standout adjustments, issue a report, and move on to the next case. Nitpicking doesn't generally occur at the small business level, it is almost always done at the large business level. Presenting yet another reason why small business audits are on the rise - they can be done relatively quickly and optimal results achieved.
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