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Congress Examines IRS Attitude To Small Businesses

by Mike Godfrey,, Washington

27 June 2016

The US House of Representatives Small Business Subcommittee on Economic Growth, Tax, and Capital Access has held a hearing to examine the attitude of the Internal Revenue Service (IRS) toward small business.

The Subcommittee looked at how small businesses are treated during the agency's audit process. In particular, it examined whether the IRS is too aggressive with its audits of small businesses, and whether the IRS is pursuing an agenda to maintain effective communication and relationships with small business taxpayers.

In his opening statement, Subcommittee Chairman Tim Huelskamp (R – Kansas) pointed out that, "in the administration of the tax code, the IRS has dual roles: collection and enforcement. Small businesses have a right to be treated fairly on both counts. Unfortunately, that isn't always the case. … [While] the best outcomes will result from the IRS and taxpayers working together to improve voluntary compliance and efficiently allocate resources, the Small Business Committee has heard from a number of small businesses that have been harmed in one way or another by the IRS."

He said that the hearing would focus on "some of the ways the IRS can proactively work with small business taxpayers to improve communication and compliance, as well as on some things the IRS needs to do differently."

Member of the Internal Revenue Service Advisory Council, Roger Harris testified that IRS correspondence audits "can be frightening to small business taxpayers, as well as being time consuming and expensive," especially when "responses are lost or delayed in the system."

He added that "the nature of the correspondence audit process is that it is almost wholly automated. … There is no one point of contact taxpayers or their representatives can call at the center to track down a particular case."

A problem, he continued, is "the non-receipt of notices because taxpayers have moved, or for whatever reason are not receiving them. Taxpayers are blissfully ignorant. We believe [the IRS could] better facilitate the tracking of cases. 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 taxpayers to track correspondence responding to notices and the status of their cases."

Harris believed that the IRS's Future State Initiative for online taxpayer accounts could provide significant relief to many of the problems associated with audits, as a taxpayer receiving a notice could view their status online and reply to any request for documents.

However, he noted that the agency is concentrating on individual taxpayers' accounts, and has "no real plans for providing business level accounts." Whereas the owners of pass-through businesses, such as sole proprietors or S corporations, will be able to use their individual owners' accounts, "more complex small businesses organized as C corporations or partnerships will not have access to these accounts."

In his testimony, Pete Sepp, President of the National Taxpayers Union, stated that "simplifying the tax laws themselves [would have] numerous advantages to small businesses, from reducing wasted expenditures, to increasing compliance, to making the examination process less uncertain for both the taxpayer and the IRS."

He also believed that a major concern with the Future State Initiative could be that "the IRS's intent to interact with taxpayers mostly in an online setting overlooks the potential continuing demand for face-to-face service or telephone inquiries from taxpayers with complex or highly specialized issues (among them small businesses)."

TAGS: individuals | compliance | tax | small business | business | proprietors | tax compliance | individuals in business | Internal Revenue Service (IRS) | tax authority | self-employment | United States | Tax

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