Critics question IRS initiative targeting small businesses on Under Reporting of Income
Critics question IRS initiative targeting small businesses
Small
business owners across the country are receiving letters from the IRS
questioning if they are reporting all of their cash income, in a new push by
the agency some are saying could unnecessarily create fear in the small
business community.
The Wall Street Journal reports the initiative
is an attempt to respond to what the
agency feels is a widespread failure by small businesses to report all their
cash sales.
is an attempt to respond to what the
agency feels is a widespread failure by small businesses to report all their
cash sales.
The
agency says the letters are not the same as an audit, and it is simply seeking
more tax information from the businesses. However, some lawmakers and business
owners who received the letters say the initiative is alarming.
"There's
an emotional thing when you get a pretty ominous-looking letter from the IRS,
[saying] you might have done some bad things," small business owner Tom
Reese tells the Wall Street Journal. "I really work hard with my
accountant to make sure that I not only follow the law, but follow the letter
of the law."
One
letter the IRS sent is headlined, "Notification of Possible Income
Underreporting." It notifies the business owner "your gross
receipts may be underreported" and says they must complete a form "to
explain why the portion of your gross receipts from non-card payments appears
unusually low."
One
lawmaker says the letter’s tone implies wrongdoing from the start.
"The
letter implies that this is a serious matter that could lead to assessments of
additional tax, penalties and interest," says a letter sent to the IRS
Friday by Rep. Sam Graves, R-Mo., chairman of the House Small Business
Committee.
Though
the IRS has only sent letters to small percentage of businesses so far, around
20,000 of the estimated millions in the U.S., the agency says they hope to
expand the program in the coming months.
One
small business owner says the initiative will likely create fear among business
owners, as it is often difficult to match credit transactions with income.
"There
are so many reasons why, even if you're the most honest tax payer, you're not
going to match (what card records show),” Fran Coet, who runs an accounting
business in Westminster, Colo., tells the Wall Street Journal.
For
example, Coet says, when a company sells a gift card it does not count for
accounting purposes as a sale, but appears as such to credit card companies.
In
a statement to the Wall Street Journal, the said the agency is “working
diligently to minimize burden on both taxpayers and tax professionals” in
implementing the new program.
The
agency has been under fire in the past few months when it was revealed it was
unfairly targeting conservative groups for special scrutiny when they applied
for tax-exempt status.
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