Many Georgia residents have quit their jobs and opened up their own businesses. While they enjoy the freedom that being a business owner can provide, they may not realize until it is too late that the Internal Revenue Service may be closely scrutinizing their tax returns and looking for unreported income.
Earlier in 2016, a tax professor at American University in Washington, D.C., provided testimony on this issue to the House of Representatives Small Business Committee. He believes that the IRS is disproportionately targeting small businesses, and as a result, these companies spend an excessive amount of time responding to IRS requests at a cost of billions of dollars in legal and accounting services. The professor stated that one reason could be that many small businesses operate on a cash-only basis, which can lead to the underreporting of income. Another reason could be the reduction in the IRS’s auditing budget, which may force auditors to concentrate on examinations that can take far less time than those involving bigger entities.
He noted that the practice may not be producing the results that the IRS intended. The amount of money that was collected from these audits in 2015 was the lowest it had been in 13 years. This suggests that the practice is a waste of IRS resources and an unfair burden on those small businesses with returns that are correct and complete.
The prospect of an IRS audit can be just as chilling to a small business as it is to an individual taxpayer. Business owners who are facing one and unsure how to proceed may want to meet with a tax attorney to discuss their situation.