WASHINGTON – Today, Small Business Committee witnesses told Congress that increasingly aggressive audits by the Internal Revenue Service (IRS) are harming innocent small businesses, forcing some to close their doors entirely.
“The IRS has an obligation to provide small businesses with clarity and to treat all taxpayers with fairness and respect,” said House Small Business Committee Chairman Steve Chabot (R-OH). “The agency has failed repeatedly in meeting this obligation to the people it is supposed to be serving.”
“I know Members of this Committee have heard from constituents who were audited so aggressively by the IRS that they had to close their doors. Others are engaged in protracted audits that seem like vague fishing expeditions, with no end in sight,” added Chairman Chabot.
A “SECRET ALGORITHM” TARGETS SMALL BUSINESSES
“Most audits are not random,” testified Don Williamson, Executive Director of the Kogod Tax Policy Center at American University. “The IRS has a secret algorithm for determining how likely each taxpayer is to have unreported income. Employing this calculus, the IRS has concluded that small businesses are less likely to be paying their fair share of taxes relative to much larger enterprises.”
“In short, use of IRS resources disproportionately targeting small businesses, regardless of the degree of misreported income by a few, is both an inefficient use of IRS resources and unfair to the vast majority of small businesses that properly report all their income while generating more growth and creating more jobs than any other sector of our economy,” concluded Williamson.
“INCONSISTENT TREATMENT” OF SMALL BUSINESSES
“We believe there is some inconsistent treatment of small versus large businesses by the IRS, as well as differing procedures being used in audits of these businesses,” said Kathy Petronchak, Director of IRS Practices and Procedures for alliantgroup, LP. “It is vitally important to remember that America’s small businesses do indeed have needs, interests and resources that may differ significantly from those of larger businesses.”
“Some of the procedures utilized in large business audits provide added transparency that would bring greater fairness to the small business examination,” Petronchak added.
THERE IS “A BETTER WAY”
The House Small Business Committee’s hearing comes as House Republicans are offering a policy agenda to rein in the IRS and reform the tax code to help small businesses as part of A Better Way to Grow Our Economy.