IRS targets small businesses

How can entrepreneurs hope to be in compliance with a 100,000-page tax code? The IRS is stacking the deck against small businesses barely keeping afloat in the recession.

Illustration / VIPL / FS / www.smartmagna / Newscom / File
Entrepreneurs, with revenues shrinking in this struggling economy, worry that the IRS has targeted them for regulations, like the new 1099 requirements for business acquisitions.

The IRS seems to have it in for small businesses these days.

There is the new rule recently passed that require the issuance of 1099's for any purchase over $600. Many fear that this is lays the groundwork for an additional new tax system based on a Value Added Tax. It has already begun to slow entrepreneurial growth, according to House Small Business Committee Ranking Member Sam Graves. From

"I am extremely disappointed by the IRS's ongoing refusal to help employers understand the impact of this hefty requirement," Ranking Member Graves said. "The questions and confusion surrounding the 1099 reporting rule have stalled small business growth in America. Entrepreneurs are unable to plan for the future, expand their operations or hire new employees for fear that this mandate could force them to dramatically change the way they do business. In these difficult economic times, increasing uncertainty for our nation's greatest job creators is the worst thing we can do."

We have been hearing about the increasing vigilance of the IRS when it comes to scrutinizing small business tax returns. It seems that this is being taken to a new level thanks to some sophsiticated snooping by the IRS. Blogger William P. Barrett's offers some chilling quotes from Chris Wagner, commissioner of the IRS Small Business/Self-Employed Division, at his blog at Forbes:

An upbeat Chris Wagner, commissioner of the IRS Small Business/Self-Employed Division, told the annual Tax Controversy Institute in Beverly Hills his unit had stepped up its use of "machine learning" with a "robust set of algorithms" to seek "the most egregious cases" of taxpayer noncompliance.

Wagner told an audience of several hundred tax professionals that his unit now had a "focus on high-income taxpayers," which he said numbered 7 million.

To do so, Wagner said the agency was now creating individual "profiles" of specific taxpayers focusing on "total wealth." A special emphasis, he said, was on taxpayers with businesses that own other businesses with the result that they pay a "low effective tax rate."

Most experts I talk to say that they estimate that the IRS tax code now exceeds 100,000 pages. With increased focus on small business, how can any entrepreneur even hope to be in compliance? The deck is being stacked against small business at a time when they have enough to worry about just keeping afloat in the midst of this endless recession.

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