FollowDespite all the bad press the IRS is getting these days, the agency is setting its next target on at least 20,000 small businesses and possibly many more. The IRS has been sending small business owners notices inquiring whether or not the business has included every dime of their income in their tax filings. The agency has access to credit card companies and other data sources and is able to see if money spent is in proportion to money reported as 1099 income.
The IRS is claiming that they are only gathering information and are not actually accusing businesses of wrongdoing. However, not everyone is inclined to believe that. Sam Graves, (R-MO) chairman of the House Committee on Small Business, pointed out that in the IRS letters to business owners the first paragraph reads:
“Your gross receipts may have been under-reported.”
Graves believes the IRS is looking for ways to impose more taxes, penalties and interest. He feels that the letters will intimidate business owners. The IRS goes on to state that the business’s receipts are not up to IRS standards and asks that there be a response within 30 days with documentation. Kevin Thompson, CPA agrees with the esteemed Representative. “The IRS has gone from an institution designed to ensure that we are in compliance with the laws and pay our fair share to the “bully in the schoolyard.”
Sales tax and gift cards are two other aspects of concern to be careful in reporting.
The IRS is defending its campaign and suggests that small businesses are failing to report all of their cash sales. Because of present high compliance costs, it’s unlikely that business owners will be overjoyed that the IRS may be going after them. Thompson goes on to say “small business needs every dollar to work for it and not against it. Compliance is expensive and defending compliance is even more expensive.” Thompson says his experience tells him that it is not unusual for an examination to cost 2-3x what the preparation costs.
And if the IRS scrutiny was not enough, they share the results with your state and the state sends you a bill generously laden with interest and penalties. Penalties, of course, are not a deductible business expense. This makes the process even more expensive for small business owners.
For tax help and information please contact Kevin Thompson CPA at
kevin@kevinthompsoncpa.com or call him @ (310) 450-4625.
