IRS misguided

To the editor:

The Internal Revenue Service recently announced that the agency intends to target small businesses for increased scrutiny and audits to close what's called the "tax gap." That's the difference between what's owed to the government and what's actually collected.

IRS estimates that the net tax gap, which includes unpaid and underreported taxes, is about $290 billion. The agency says that underreporting income is a significant source of the gap.

Of course, no one defends tax scofflaws. We all need to pay our taxes owed, and to punish those who intentionally evade their tax liabilities. But what no one knows is exactly what portion of the tax gap is due to evasion, and what is due to simple mistakes.

What percentage of the tax gap is attributed to the complexity of the tax code? And what other external factors, such as the nature of these business' transactions, affect their tax reporting?

For example, if you're engaged in business-toconsumer transactions, it's hard for the IRS to track your activities. Unreported income from these transactions could be a significant contributor to the tax gap, but data to prove it, one way or another, isn't thorough enough to warrant drastic measures.

The IRS claims that individuals underreport business income by an estimated $109 billion. Of that, $68 billion is attributed to underreporting by Schedule C filers or sole proprietors (the balance is due from large corporations and other taxes, such as employment and estate taxes).

IRS tacitly admits that small businesses are simply easier to pursue. Big corporations can employ evasive tactics such as offshore tax havens and other shelters.

Amid continuing budget deficits and record debt, the IRS and many lawmakers look to tax-gap enforcement to find more money. The budget that the President just released this month recommends 16 proposals to address the tax gap, at least seven of which have the potential to create a significantly increased compliance burden for small businesses.

Just because large corporations' tax liabilities are more difficult to determine doesn't mean the IRS shouldn't pursue these companies. Also, simplifying the tax code to make it easier for small businesses to comply could go a long way to closing the gap.

Todd Stottlemyer National Federation of

Independent Business

Washington D.C.