The Internal Revenue Service has announced plans to crack down on small businesses accused of under-reporting their annual income. The IRS has identified and contacted 20,000 such businesses since 2012. This could spell trouble for some Texas businesses, particularly those that conduct a large percentage of transactions through credit cards.
The IRS has targeted such businesses as possible under-reporters, suggesting that they could be failing to report a significant number of cash transaction. One small business owner reportedly received a notice from the tax agency informing her that the 80 percent of her income earned through credit card transactions represented a suspiciously high proportion. The letter noted that “a larger amount of noncard revenue would be expected.”
Companies accused of wrongdoing could face serious repercussions. The IRS has the power to impose tax liens, bank or wage levies, monetary penalties and other punitive measures on individuals and businesses accused of falsifying their tax returns. This makes it important for any Texas businesses facing such accusations to contact an attorney experienced in tax law to ensure their rights and interests are properly defended.
Some experts say the IRS is wrong in the way it is targeting suspected under-reporters. An accountant whose client owns one of the 20,000 businesses targeted by the IRS says that by relying on industry averages in determining unusual levels of credit card income, the agency fails to account for businesses that might operate in unusual or unconventional ways. This might include the growing number of companies that conduct business online. “I just don’t think that the data they have is sufficient for them to send these letters out,” he noted.
The IRS claims that $140 billion of the $450 billion in taxes that go uncollected each year comes from under-reporting by owners of small businesses, prompting it to target “suspicious” taxpayers to prevent under-reporters from gaining an unfair advantages of businesses that abide by their tax obligations.
CNN Money, “The IRS is cracking down on small businesses” Jose Pagliery, Aug. 19, 2013