The Internal Revenue Service (IRS) has been targeting small companies to conduct unnecessary audits, which in the process has resulted in extra costs and wastage of business time, according to the Washington Examiner.
The measure of "extracting money" from small firms could be the result of the IRS' downsized auditing budget, which is mounting pressure on auditors to deal with the situation as efficiently as possible, according to the report.
Donald Williamson, an expert who testified at a Small Business Committee hearing Wednesday and also an executive director of the Kogod Tax Policy Center at American University, explained IRS' possible reason for doing this — small businesses receive most of their income in cash, which can be difficult to identify and report.
"The highest number of audits for 2014 of individual tax returns with business income was in the lowest range of business returns, i.e. $200,000 to $400,000, amounting to 50 percent of all audits of upper income individual returns," Williamson told The Washington Free Beacon.
"Most audits are not random," he said. "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."
Highlighting small businesses were being put "through the wringer," Warren Hudak, owner of a tax preparation company in Pennsylvania, said pressure from the IRS to score big returns in audits is growing.
"Number of IRS staff performing audits has fallen 24 percent from 2010 to 2014," Hudak said, adding, "As resources have dwindled, we have witnessed an increase in techniques we believe are intended to bring in more revenue not necessarily the correct amount of taxes."
"Many of these techniques are intimidating and all too familiarly carry a presumption of guilt," he confessed.
The IRS has been successfully putting pressure on small business owners by contacting their vendors, banks, clients and neighbors, Hudak pointed out.
He also added taxpayers feel intimidated and give in to the situation, fearing the reputation of their firm will be at stake. Taxpayers are also scrutinized extensively when asked how often they make cash deposits in banks.
The harassment does not stop there. Hudak pointed out when the IRS drops off a final audit report asking for signatures at end of the document, the owner is made to sign off without consulting a lawyer or reading it.
The blame-game continues between the IRS and the Republicans. While the Republicans point fingers toward the IRS for being too aggressive against companies, the IRS said the GOP has made it tough for them to carry out its task because of budget crunch.
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