Tax professionals warn that owners of small businesses may soon be facing a protracted and costly struggle with the Internal Revenue Service (IRS).
According to a nonpartisan watchdog organisation called the Joint Committee on Taxation, a key provision in the Inflation Reduction Act will end up targeting small business owners in order to pay for the legislation.
This provision gives an additional $80 billion to the Internal Revenue Service (IRS) in order to improve the agency’s collection of under-reported income.
The measure stands in stark contrast to President Biden’s longstanding claim that he would not raise taxes on anyone making less than $400,000 because just 4% to 9% of the revenue would come from corporations making more than $500,000 per year.
Joe Hinchman, executive vice president of the National Taxpayers Union Foundation, told The Post that the Internal Revenue Service (IRS) will have to target small and medium enterprises because those businesses “won’t fight back.”
“We’ve witnessed a similar scenario before… “We’re going after the rich,” the Internal Revenue Service says, but when you’re attempting to raise that much money, even the richest people can only get you so far.
An increase in the number of IRS agents could be particularly detrimental to small firms.
In point of fact, it may be more profitable for IRS auditors to target people in the lower and middle classes rather than the wealthy in order to increase their take from taxation.
“The rich have their attorneys and fight it,” Hinchman says, adding that this is one of the reasons why it is easier to go after the poor.
Therefore, tax specialists are warning that audits conducted by the IRS will be significantly more distressing and expensive for owners of small businesses. This is true even for those owners who believe they are correctly filing their taxes.
Sens. Joe Manchin and Chuck Schumer have agreed on a compromise that will provide the Internal Revenue Service with an additional $80 billion.
Daniel Bunn, executive vice president of the Tax Foundation, was quoted in The Post as saying, “The vast majority of small businesses aren’t doing anything wrong.”
“We do not simplify the tax law, and because the tax code is so complicated, it is impossible for owners of small businesses to comply with all of the regulations.”
According to Bunn, even if the owners of small businesses do everything correctly, they may still find themselves dealing with a headache as a result of the expansion of the IRS, which will involve the mailing of additional notices and letters to firms.
A letter from the Internal Revenue Service informing an individual contractor or a small business that they owe extra money or that they made an error on their taxes might put them in the red.
Bunn went on to say that “anytime you get a notice from the IRS, it may take months or years to get it settled, and we’re talking about many thousands of dollars to address.”
“Large corporations have frequent reviews, and lawyers are going through everything,” but “little business doesn’t have the resources to fight back in the way.”
The White House has refuted claims that the bill will be detrimental to Americans with lower and middle incomes. Instead, the White House has pointed out that the estimate provided by the JCT does not take into account how much the bill will offset costs for typical Americans, such as the cost of prescription drugs.
However, tax specialists are not as optimistic about the possibility of providing the IRS with additional resources.
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According to Hinchman, “the strategy here is to double the staff of the IRS, let the leash off of them, and see how much they can collect.” “I believe that they will gather it; nonetheless, the process will be rather unpleasant.”
