Study Finds IRS Targeting More Small Businesses A few mistakes on your tax return can bring you unnecessary stress, delay your refund and subject you to more pesky paperwork, or worse, an appointment with an IRS agent--especially if you are a small business. The Syracuse University-based Transactional Records Access Clearinghouse (TRAC) released a report this week that found tax audit rates of the largest companies have decreased sharply while more small and mid-size businesses are coming under increased scrutiny. The TRAC report claimed that 2007 provided a "historic collapse" in audits for corporations holding assets of $250 million or more. Based upon TRAC data, only 26 percent of corporations holding assets of $250 million or more were audited in the 2007 budget year compared with 34 percent in 2006 and 43 percent in 2005. The IRS did not dispute the data presented by the report, but it did disagree with implications that it was easing oversight over large corporations. IRS Deputy Commissioner Barry Shott pointed to the one-third increase in enforcement revenues from large companies from the previous year, from $10.6 billion to $14.2 billion. Shott claimed “what we are doing is focusing our resources better on where the noncompliance is,” suggesting that enforcement of tax shelters and "extraordinarily complicated" partnerships and S-corps is where the IRS needs to ramp up noncompliance efforts. However, the TRAC report drew the conclusion that the IRS was concentrating more on regular small and mid-sized companies to boost audit numbers. The new IRS commissioner, Douglas Shulman, told the Senate Finance Committee last week that audits of businesses in general rose from 52,000 in 2006 to 59,500 in 2007. Schulman acknowledged that audits of larger corporations were indeed down for 2007 but said that "in times of flat budgets, the agency cannot increase activity across the board, but must address the areas where there is growth and potential risk." Data from the TRAC report counteracts the claims made by the recent IRS non-compliance efforts. As the researchers stated, "Moving the focus of the corporate auditors away from the large corporations and toward the smaller ones has been quite effective when it came to increasing the overall number of these kinds of audits but actually was counterproductive in financial terms." The group said that last year the government uncovered $682 in additional recommended taxes for every revenue agent hour spent auditing the smallest corporations, compared with $7,498 in additional taxes for audits of the largest corporations. NSBA feels very strongly that the withholding, record-keeping, reporting, and general compliance burden the tax code imposes on small businesses is already too great. In response, NSBA launched the Tax Gap Initiative in April 2007 to educate small businesses about this looming threat, and to give small businesses the tools and information they need to communicate their concerns to officials in Washington over increased efforts of non-compliance. As the IRS continues to ignore the burden placed on small businesses across the country by an outdated tax code, NSBA will continue to ramp up its efforts to educate lawmakers and small business owners on the need to fix a broken system. |