Mincing no words, the National Federation of Independent Business says a new report from the General Accounting Office provides “fresh evidence that the federal tax system consigns America’s small business owners to the ninth circle of tax hell.” And Dan Danner, the NFIB’s vice president of federal public policy, adds that the audit division of the Internal Revenue Service “has been training its big guns on the smallest taxpayers.”
“Faced with layer upon layer of complicated requirements – some of which may be interpreted differently by tax experts – small business owners are little more than sitting ducks for exhaustive audits,” said Danner.
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The GAO study was undertaken at the request of U.S. Sen. Kit Bond, a Missouri Republican and chairman of the Senate Small Business Committee. Among the findings in the report:
Compared to the average taxpayer, small business owners are nearly three times more likely to be audited by the IRS.
The average small business audit drags out for anywhere from nine months to two years, depending on the type of business.
Small businesses are subject to multiple layers of filing, reporting and deposit requirements, including more than 200 different IRS requirements that potentially apply to small firms.
Danner said the prospect of an IRS audit “terrorizes” most small business owners, no matter how carefully they have retained receipts and other records.
“Throughout an audit, small business owners serve at the whim of IRS agents,” he said. “In addition to providing working space for the auditor, they must be prepared to spend unlimited resources retrieving and processing any data requested, making themselves and their employees available for interviews on demand.”
Mark S. Deion, of the Warwick-based Deion & Associates is a small business consultant and was a delegate to the most recent White House Conference on Small Business. Deion said the IRS has long been a problem for the small business owner. “The complaints against the IRS are legitimate,” Deion said. “The IRS has paid lip service to small business organizations. Everything it has done has created more of a burden. There is more paperwork required, more regulation. The situation is worse, not better.”
Deion said he visits Washington, D.C. about 15 times a year to lobby on behalf of the small business community. It is a difficult task, he said.
“The perception is that this is about corporate welfare,” said Deion. People think that small business owners are wealthy. But there is an inequitable tax burden”
The NFIB also has a major problem with the length of IRS audits and the impact they can have on the day-to-day operation of a small business.
“The whole ordeal typically lasts months or even years, disrupting business operations throughout that time,” said Danner. “Our members are convinced that, the longer an audit goes without finding any problems, the greater the temptation for an auditor to drag things out even further in the hope of finding something, somewhere, that can help justify the time already spent combing through the books.”
But Danner and the NFIB do not lay all of the blame on the IRS. The country’s tax code – a product of the many decisions made by Congress and the executive branch – is at the root of the problem, said Danner.
“The real villain here is not the IRS but our unwieldy, unworkable tax code,” he said. “The report illustrates anew the crying need to abolish our hopelessly complicated tax system. That would make life easier for taxpayers and auditors, alike.”
The IRS, for its part, has taken strides in recent months to soften its image. The agency has even come up with a new mission statement; “Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.”
And most recently IRS Commissioner Charles O. Rossotti named IRS executive Bob Wenzel to direct the implementation of hundreds of recommendations to improve IRS’s treatment of taxpayers and the service it provides them. As head of the new Taxpayer Treatment and Service Improvements Program, Wenzel will report directly to Rossotti.
According to the IRS, Rossotti created the Taxpayer Treatment and Service Improvements Program to coordinate, plan and manage the hundreds of recommendations the IRS is receiving and the specific commitments it has already made.
Recommendations have come from such external stakeholders as the Senate Finance Committee, Vice President Gore’s National Performance Review, the General Accounting Office and the Commission to Restructure the IRS. The program team will also study the many recommendations from other sources, including Internal Audit reports, IRS employee feedback and recommendations and comments from taxpayers.
The NFIB is the nation’s largest small business advocacy group. A nonprofit, nonpartisan organization founded in 1943, the NFIB represents 600,000 members in all 50 states. Since 1997, the NFIB has led the “Campaign for Responsible Tax Reform,” a grassroots movement calling on Congress and President Clinton to sunset the federal tax code on a date certain, replacing it with a fairer, simpler system.
Deion supports such efforts. He also knows that change takes time. And time is a commodity.
“How can we change these things?” asks Deion. “Maybe by another 20 years of trips to Washington. But many small business owners are too busy running their business to lobby for change.”
