Committee Examines IRS Methods for Auditing Small Businesses

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Washington, Jul 17, 2013 | comments
The House Small Business Committee, led by Chairman Sam Graves (R-MO), today held a hearing examining the methods the Internal Revenue Service (IRS) uses to audit small businesses.

Acting IRS Commissioner Daniel Werfel testified. The purpose of the hearing was to identify how the agency selects and classifies the tax returns of small businesses, in light of revelations that the IRS used inappropriate criteria to unfairly target certain groups.

“Congress has a responsibility to ascertain just how far the Internal Revenue Service’s inappropriate activities extend, and the best way to do that is to ask some direct questions,” said Chairman Graves. “Today, Committee Members did just that, focusing on the IRS’s criteria for classifying small businesses. I appreciate Mr. Werfel’s willingness to establish a new review process to monitor small business auditing practices, and we look forward to the results of that review. However, the IRS’s responses to my other concerns are incomplete and we will continue our oversight about this very important matter. One thing is clear: no taxpayer should ever face a higher likelihood of an audit because he or she expressed a political opinion in America. In a democratic form of government, people should be encouraged to be openly involved in the public discourse. We have to be vigilant that tax enforcement is objective, fair, and transparent; not based on personal bias or abusive in nature. The IRS has some work to do to restore the trust of the American people, and that starts with transparent answers to Congress.”

In April 2011, a draft Executive Order (E.O.) would have required businesses seeking federal contracts to disclose to federal procurement officials any political contributions made by the businesses’ employees during the prior two years. In May 2011, the Small Business Committee held a joint hearing with the Oversight and Government Reform Committee on the draft E.O.  The proposal was overwhelmingly criticized by the business community, and by a bipartisan group of Members. The E.O. was never released, but the Obama administration’s misguided policy provided insight into how political activity can factor inappropriately into decision-making.

On May 10, 2013, the IRS apologized for unfairly targeting applicants for tax-exempt status based on political leanings. Before that, the IRS repeatedly denied during Congressional hearings that they were targeting conservative grassroots organizations. 

On May 31, 2013, Chairman Graves wrote to the IRS to inquire whether the agency also singled out small businesses. Among many questions, Graves asked whether the tax returns of small businesses were selected for closer review and what criteria were used to select small businesses for audits.

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