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New regulations advocated by the IRS would require small businesses to withhold payroll taxes on independent contractors and report payments in excess of $600 to corporations of all sizes, even if a business owner is purchasing goods from a major retailer. The IRS also proposes giving the IRS direct access to all business credit card and checking account records.
“Instead of outsourcing collection efforts to law abiding small business owners, the IRS should be conducting pointed research and analysis on how to improve services, simplify taxes and crack down on intentional tax evaders.” said Paul Hense, a Michigan CPA and chairman of the National Small Business Association Tax Gap Committee. “In the last two years alone, audits of small corporations have increased 150 percent and the IRS would like to see this percentage continue to rise.”
A recent nationwide poll conducted by NSBA shows that 61 percent of small business owners are not even aware of what the tax gap is. Once informed of the IRS proposals however, the majority of owners believed the proposals would increase burdens on their business.
NSBA fully supports efforts to collect legally owed tax revenues, but not at the undue expense of the privacy and integrity of honest, hard-working entrepreneurs. To assist in the effort, NSBA is launching a comprehensive Web site that will provide a unique forum and tools supporting the initiative. By going to Prevent IRS Abuse small business owners can learn about the proposals, what to do if they are audited and share stories of IRS abuse with their peers, the press and policy makers.
The “tax gap” is the IRS’ estimate of the difference between the amount of tax owed and the amount actually collected by the government for a specific tax year. Currently, the IRS puts the tax gap at over $290 billion. The estimate includes underreporting, nonfiling, and underpayment. The IRS claims that small businesses are to blame for a significant portion of this gap, mostly due to underreporting (understating income or overstating deductions). This claim has fueled the IRS’ hiring of more auditors and the lobbying of Congress for increased funding to audit more small businesses.