WASHINGTON – Today small business owners and advocates told a key Congressional subcommittee that increasingly aggressive audit tactics by the Internal Revenue Service (IRS) have been used to intimidate small companies, creating an atmosphere of fear and uncertainty in the small business community.
“In the administration of the tax code, the IRS has dual roles: collection and enforcement,” said Subcommittee on Economic Growth, Tax and Capital Access Chairman Tim Huelskamp (R-KS) in his opening remarks. “Small businesses have a right to be treated fairly on both counts. Unfortunately, that isn’t always the case.”
“The Small Business Committee has heard from a number of small businesses that have been harmed in one way or another by the IRS. In at least two cases, aggressive audits have resulted in these companies closing their doors.” Subcommittee Chairman Huelskamp added.
National Taxpayers Union Speaks Out
“To this day, taxpayers and advisers continue to report on troublesome developments in IRS audits that range from isolated cases to broader policies,” testified Pete Sepp, the President of the National Taxpayers Union (NTU).
“From the view of the small business person immersed in an audit, such matters of policy seem academic. What, therefore, are the more palpable “fear factors” foremost in business owners’ minds when undergoing this process?” asked Sepp.
“Based on NTU’s review of research literature, statistical analysis, oversight reports, and hundreds of anecdotes over the past several decades, we believe the following are most pertinent,” said Sepp pointing to “uncertainty” and “intimidation tactics.”
“A September 2014 report for the National Association of Manufacturers calculated that the regulatory cost per worker for all tax compliance activities in firms of any size was a whopping $960 (using 2012 data and expressing in 2014 dollars). For companies with fewer than 50 employees, the tab was much worse – over 50 percent more, at $1,518 per worker. Unfortunately, these considerable outlays and resources do not buy peace of mind for small business owners who, as Ranking Member Velázquez stated, often operate in fear of vague laws being used against them,” Sepp added.
“Time Consuming,” “Expensive” and “Devastating”
“If Federal Express can manage millions of packages all over the world, it seems that the IRS could come up with some sort of bar code or other tracking system that would allow both the IRS and the taxpayers to track correspondence responding to notices and the status of their cases," testified Roger Harris, a franchise owner based in Athens, Georgia.
“The vast majority of small business audits are correspondence audits. While they are intended to cover only simple issues, because of the IRS’s focus on efficiency, they can be frightening to small business taxpayers, as well as being time consuming and expensive. In some circumstances when things go wrong, they can be devastating to a business,” Harris added.
A Lack of Transparency
“Aligned with this issue is a lack of transparency with the IRS,” said Lee Davenport, a Member of the Electronic Tax Administration Advisory Committee (ETAAC). “For most taxpayers, the information the IRS has about them is a mystery. It’s not easy for taxpayers to access and understand their tax information on file with the IRS, their previous tax-related interactions or their tax compliance obligations.”
“For small-business taxpayers, this issue is even more critical, because small businesses are more likely to complete multiple year-round transactions with the IRS. In many cases, when there is a compliance issue, small-business taxpayers find out with a surprising IRS notice after they file, or – even more stressful – an audit that can take months or years to resolve. For all types of taxpayers, accessing and using their tax information to proactively comply is almost entirely out of the question in the current system,” Davenport noted.
You can read full testimony from today’s hearing here and view video from today’s hearing here.
- Today’s hearing represents the latest part of the House Small Business Committee’s ongoing oversight of mistreatment of small businesses by the IRS.
- Last month, National Taxpayer Advocate Nina Olson told the full Committee that the failure of the IRS to help answer basic questions from taxpayers was “beyond unacceptable” and “absurd.”
- In April, Full Committee Chairman Chabot and Members pressed IRS Commissioner John Koskinen on a myriad of problems with his agency’s treatment of small businesses ranging from lax cybersecurity to complying with the complexities of the tax code.