For years, small business owners have been the driving force of the American economy. They’re the ones who are hiring people in their own communities and who are keeping the markets flush with unique products and services.
Unfortunately, they have also done this with cards chronically stacked against them. Now, though, it looks as though the Internal Revenue Service is doing everything it can to cripple growth, thereby preventing the economy a more substantial growth. The question is why.
The IRS is targeting small businesses around the country. So far, it’s been discovered that there are 20,000 small businesses who are being put on notice and the agency is just getting started. Why it would want to take such drastic actions, knowing the repercussions could be catastrophic, is anyone’s guess.
Notification of Possible Income Reporting
These “Notification of Possible Income Reporting” letters are being received every day in these businesses. It’s gathering data from credit card companies, among other sources, to ensure everything is being reported on their tax returns. Specifically, it’s plundering Form 1099s. Agents are comparing returns with data received from the third parties to make sure everything adds up just so. And it’s attempting to determine whether or not cash is being collected, but not reported.
The Politicians Speak Out
It’s become quite controversial, too. Even politicians are weighing in. Missouri Congressman Sam Graves, who is Chairman of the House Committee on Small Business, said that the very first sentence in these notices are accusatory. It reads,
Your gross receipts may have been underreported.
To Graves, it looks as though the agency is absolutely accusing small business owners of underreporting. For that, he says, the IRS has to be reined in. He said small business owners have already become alarmed and many are feeling overwhelmed and in some instances, threatened. The letter ends by giving the small business owner 30 days to “come clean” or otherwise prove why the numbers aren’t adding up. It’s absolutely remarkable that the government agency is even embarking on such a risky, controversial and unnecessary effort.
Perhaps the worst part is that the IRS refuses to provide any kind of insight as to why it’s doing this, even when it’s asked directly. It doesn’t even provide small business owners explanations as to why they’re being targeted. Even so, it’s been learned in the past several days business owners are being told to explain why they underreported their income, even when the business owners say they didn’t undderport. It’s as though they’re being forced to move forward with the cards stacked against them and no way out. It’s difficult to prove something doesn’t exist when it…well…don’t exist. Graves insists the IRS is simply looking for away to pull in more taxes, penalties and interest.
Remember, Form 1099 has undergone changes in recent years because of rampant underreporting; however, it never said how it came to the decisions the agency is making every day. Some have suggested that because consumers sometimes take cash back when paying with their credit or debit cards, the IRS expects merchants to provide an accounting of that. There’s nothing that says merchants must account for cash back during checkout. There is also speculation that gift cards are entering into the mix. Again, there are no specifics regarding how those values must be reported – if at all.
Instead of acknowledging those possibilities, the agency insists that small business owners aren’t reporting their cash transactions. It would be akin to store security stopping a customer walking out of a department store, accusing that customer of shoplifting, bringing them back inside the store and finding out that the customer didn’t shoplift anything, but still continued to accuse him. The IRS is vehement in its accusations. Unfortunately, it’s coming at the expense of these business owners who can least afford the distraction.
Meanwhile, many of those small companies won’t likely find help with the Small Business Bureau. It’s having its own crisis these days. The agency’s administrator announced she was leaving in a matter of weeks. Karen Mills said she’s accepted a role with Harvard Business School and Kennedy School of Government. The role she leaves is a Cabinet position, which means President Obama will have to appoint a new administrator, which he’s yet to do. He can’t afford to wait long, especially with this latest nonsense from the IRS and the fact that small business owners are still struggling post-recession.
Mills was appointed SBA Administrator in 2009 by President Obama. It was at that time he made the position one of a Cabinet level status. Not only did she execute her role flawlessly (she redefined the process for approval rates for small business loans).
If you’re wondering just how relevant the small business owner is, according to the SBA Office of Advocacy’s Research and Statistics, the numbers highlight that importance:
Businesses or firms with fewer than 500 employees account for 99% of all employer firms, are responsible for more than half of the collective workforce in the U.S., bring two thirds of new jobs and account for almost 45 percent of private payrolls.
New Healthcare Laws
Small business owners have taken massive hits since the new health care laws were passed. They’ve cut back by laying off employees and taking those who remain out of a full time role so that they don’t have to shoulder the brunt of the massive increases the president’s health care plan promises.
Finally, it’s important to remember that this data the IRS is collecting – credit cards, banking information – means your information could be included in those seizes. It certainly puts new perspective on the matter. Then again, with all of the other scandals breaking these days, including phone taps and other personal information being scrutinized, many aren’t surprised at all.
What are your thoughts on these new revelations? Should the IRS be given that kind of leeway to simply make its rules as it goes along? Certainly not and ideally, the Consumer Financial Protection Bureau will be able to play a role in halting these unethical practices.