Lawmakers Press IRS to Ease Small Business Tax Burdens

April 1, 2009 (202) 226-3636

Lawmakers Press IRS to Ease Small Business Tax Burdens

WASHINGTON, D.C. - With April 15^th just two weeks away, lawmakers today questioned the nation's top tax man about why small business audits are on the rise as corporate audits fall, saying the IRS must do more to help overwhelmed entrepreneurs struggling to comply with the complex tax system. Internal Revenue Service (IRS) Commissioner Douglas Shulman testified before House Small Business Committee detailing the agency's plans to help entrepreneurs take advantage of tax relief in the recently passed stimulus bill and describing the IRS' plans to conduct outreach and education for small firms.

"Ask any entrepreneur what time of year they most dread and they will tell you it is tax season," said Chairwoman Nydia M. Velázquez (D-NY).  "Small businesses struggling to keep their doors open find themselves spending valuable time and resources just to make sure they follow the rules and pay their taxes on time."

Velázquez questioned Shulman about the rising number of IRS small business audits. A recent study shows that while IRS audits of large businesses are at an all-time low, entrepreneurs are being audited at nearly twice their rate. In fact, the IRS audited smaller companies 41% more often in 2007 than in 2005, and companies with $10 million to $50 million in assets were 29% more likely to be investigated in 2007 than two years previously, according to a new study from the Transactional Records Access Clearing House at Syracuse University. Meanwhile, companies with more than $250 million in assets were nearly 40% less likely to be audited than in previous years.

"I find the IRS' recent shift in auditing attention from large companies to small businesses troubling," Velázquez said. "Our nation's entrepreneurs are having a difficult enough time without the IRS stacking the deck against them."

Lawmakers told Shulman about entrepreneurs in their districts who feel overwhelmed by the tax system and called on the IRS to do more to help small businesses seeking answers to their tax questions.  For instance, while more than half of entrepreneurs now work at home, extensive requirements to claim a home office deduction result in many forgoing the tax benefit. Committee members said the IRS should work harder on outreach efforts to educate and assist entrepreneurs who could use a helping hand during these difficult economic times.

"Entrepreneurs don't have the resources to hire armies of experts like large corporations," said Velázquez. "Nothing strikes fear into the heart of a taxpayer more than an IRS audit, and yet, entrepreneurs are being audited more often than their larger counterparts."

Members of the Committee also pushed the IRS for details on how it would implement targeted tax relief contained in the American Recovery and Reinvestment Act. Under the bill which was enacted last month, small businesses will receive an infusion of cash thanks to new net operating loss (NOL) provisions, extended bonus depreciations, vehicle depreciations and energy efficiency credits. As the lone agency responsible for collecting taxes and distributing refunds, the IRS plays an important role in helping entrepreneurs take full advantage of the stimulus' tax relief.

"Like all taxpayers, entrepreneurs just want straight forward answers to questions and a clear cut process to file their taxes," said Velázquez. "We need our entrepreneurs to revitalize our economy, and the IRS can help by ensuring these small companies start benefiting from small business tax relief under the Recovery Act."