Corporations, Buisness Owners and and IRS Compliance
As the deficit in the federal government continues to grow and cash strapped states are looking for additional revenue, now is a good time to make sure you are in compliance with all tax laws. If not, you and your business may be the next target of a federal or state withholding agency.
Recently, the Treasury Inspector General for the IRS has issued a number of audit reports. The titles alone should make business owners and taxpayers nervous. Some of these titles are '"The Automated Substitute For Return Program Brings Some Taxpayers Into Compliance; However Program Enhancements Are Needed", "Withholding Compliance Program Results Are Trending Favorably, But Program Enhancements Are Needed", "Procedures Need To Be Developed for Collection Issues Associated with Taxpayer Identification Nmbers", and finally "Criminal Investigation Division Resources Devoted to Supporting Recomended Prosecutions Can be Enhanced with a Strategic Focus." These are just a few studies over the past month and a half they have released.
All of these audits reports have a common theme i.e., compliance and enforcement. This, coupled with the number of new auditors being hired by the IRS, should make business owners a bit weary of trying to circumvent the system or playing fast and loose with the rules.
Ann Field, at Businessweek, published an article today titled The IRS Targets Independent Contractors. In the article she highlights this how the IRS is placing a greater emphasis on pursuing small business that use Independent Contractors.
Over the past five years the agency has increased by 30% the hours spent auditing companies with less than $10million in assets while decreasing by a third the time spent on large-company audits, according to the transactional records Clearinghouse, a research center at Syracuse University. While the IRS disputes that study's methodology and says it isn't targeting small business, some tax experts say such a strategy would make sense. The IRS believes smaller business are more likely to evade taxes, says Dean A. Zerbe, a managing director of alliantgroup, a Houston tax consultancy. "It's also easier and quicker to audit smaller businesses."
This is further supported by the fact that the IRS in February launched a major initiative in which they plan on auditing 6,000 companies over the next three years for identifying employee misclassifications. An estimated $7 billion is expected to be raised over the next 10 years through stricter enforcement.
In summary, beware, both federal and state agencies are looking at enforcement and compliance to tax laws. Failure to comply can cost you a significant amount of money, in fines and penalties, not to mention the additional stress.