Does the IRS single out certain small-business owners for audits, as it did with some tax-exempt organizations? There's no reason to think so, its top official said yesterday.
Acting IRS Chief Daniel Werfel testified before the House Small Business Committee about the agency’s small-business audit selection process. In late May, Committee Chair Rep. Sam Graves (R-Mo.) sent a letter to Werfel inquiring about the small-business tax return auditing practices, in light of the IRS scandal over its targeting of certain tax-exempt Republican-led political organizations.
Werfel admitted yesterday that the targeting of audits at certain conservative organizations was unfortunate, but that such practices had apparently not spilled into its small-business procedures.
“What I’m suggesting is that we don’t have any particular evidence at this time that the objective and analytical criteria that we put in place to review small businesses for potential increased scrutiny has any fundamental flaw that would lead one to the conclusion that there’s unfair targeting,” Werfel said, according to The Hill.
Werfel added, however, that he was continuing to investigate the matter.
In prepared testimony, Werfel said the IRS audited 1.3 percent of small-business returns filed in 2012 and uses a computer program to screen and determine which ones. As I wrote last month, the IRS uses a scoring process to help figure out which returns to audit. A study by the Taxpayer Advocate Service found that sole proprietors get audited more often than incorporated businesses, as are those that claim many deductions. Business owners in certain cities, such as San Francisco and Atlanta, and certain industries, such as construction, are also more likely targets.
Another committee member, Rep. Nydia Velázquez (D-N.Y.), told Werfel yesterday that the agency needs to be more open about its auditing process, because many small-business owners feel singled out and unduly worried about audits. “The constant comment is that IRS goes after small businesses,” Velázquez said, according to The Hill. “That is what is out there. That is the perception. And time and again, that’s what people hear.”
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