According Business Week online, the IRS is amping up its focus on auditing small businesses, over and above the usual rate of audits system-wide ("The IRS Sets Its Sights on Small-Biz").

Everson, who’s serving a five-year term, says cracking down on small
businesses now will minimize the national deficit and avoid an eventual
tax increase.

I’m on the fence about this.  On one-hand, the "little guy" shouldn’t get away with tax evasion just because he thinks he will escape notice.  On the other hand, "avoiding an eventual tax increase" is a great rallying-cry, but the cost of these audits on thousands of "little guys" will eat up quite a bit of the recovered monies.  (whoops….just noticed they said that further down in the article — it’s stil true, though!)

"Pressure is being applied to find the money that they claim is there,
but what if it isn’t there? Think of the pressure which that puts on
the IRS to get tougher. You don’t want to be the person that gets
audited the day after that message goes out. It’s like saying ‘We
couldn’t find a problem, so find one,’" says Paul Hense, a certified
public accountant and chair of the NSBA.

I’ve always wondered about this phenomenom, but I think it’s just luck of the draw.  As they point out in another part of the article, the key is not to apply pressure to find what isn’t there.  Instead, the push should be to better qualify the audit targets before the audit is done.

In any case, it’s always scary hearing about the IRS on the warpath (or even politely knocking at your door).  It’s just another reason to keep your nose clean and be best buddies with your very competent accountant.

2 Thoughts on “IRS Wages War on Small Businesses”

  • I have to say I despise the IRS in general. I have not found them to be a particuarly honest, efficient, or ethical organization in general. I know there are some good people who work there, but the tax code is so out of control that most IRS people dont understand it, and enforcement can become very arbitrary with sketchy legality. There some pretty nefarious aspects of the tax code I wont even go into here.
    The biggest issue I have with this is not that the IRS will be trying to enforce the law more, but that the tax load on small businesses is crazy as it is. If too much pressure is brought to bear on the greatest employment sector in the country, unemployment will cease to be a good number. The best option would be to simplify or redesign the codes. The IRS employs hundreds of thousands of people, and they still have a hard time with tracking all of the aspects they need to and enforcing tax law. This is not because they are full of incompetents, but because the tax laws themselves are a travesty.
    Oh, and the key to avoiding a tax increase is and always has been to stop spending so much money at the government level. The auditors need to be turned on themselves, and some accountability must be put on the spenders before any more pressure is put on the producers.

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