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Excessive IRS Targeting May Have Included Small Businesses
 

The House Small Business Committee has asked the IRS to hand over information about recent small business audits

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Unfair Internal Revenue Service targeting extended beyond the Tea Party to small businesses, House Republicans say.

On Friday, Small Business Committee Chairman Sam Graves (R-Mo.) sent a letter to acting IRS Commissioner Danny Warfel requesting more information about the way the IRS chooses small businesses to audit.

The letter comes after revelations that since 2010, the IRS may have targeted conservative lobbying groups for excessive scrutiny.

It also follows a contentious episode in 2011, when debate in the House Small Business Committee helped squash an executive order that would have required small business government contractors to reveal their political donations.

And it follows a steady stream of complaints to the committee from small business owners alleging unfair auditing practices by the IRS, Darrell J. Jordan, a spokesman for Graves and the House Small Business Committee, says.

"[Small business owners] feel they have been unfairly audited, and some have been audited several times, and some feel they should not have been audited," Jordan says. "We want see the material evidence of why they're auditing who they're auditing."

Graves' letter asks the IRS commissioner to provide more information on recent small business audits, including how many small businesses were selected for an audit in the past three years, what methods and criteria were used, the average duration of small business audits compared to the duration of other audits, and the average amount recovered from the audits versus the cost of the audits. The letter asks for a response by June 17.

"Recent Congressional investigations have raised questions about Internal Revenue Service (IRS) targeting the non-profit status requests of certain conservative organizations," the letter reads. "These investigations have only raised more questions as to the extent these practices my have extended beyond conservative groups."

It is unclear if the letter has bipartisan backing. Attempts to reach Mr. Graves' Democratic counterpart on the House Small Business Committee, ranking member Congresswoman Nydia Velazquez (NY) were unsuccessful. Senator Mary Landrieu, (D-La.), the head of the Senate Committee on Small Business and Entrepreneurship, had not commented by press time.

The technically non-partisan, but often left-leaning, lobbying group the National Small Business Association says it generally support Mr. Graves' position. Specifically, NSBA says the tax code needs to be simplified to ensure certain kinds of businesses are not singled out for unfair tax scrutiny.

"We think small businesses should be fairly treated, and in the past we have talked about a tax gap and the fact that there are certain kinds of small businesses, or S-corps, that are targeted and seen as not paying their fair share," says Molly Brogan, a spokeswoman for NSBA.

That strikes a chord for Glenn Spencer, president and founder of Spencer Machine and Tool in Jeffersonville, Indiana. The company has 18 employees and about $2 million in annual revenues. Spencer repairs industrial machinery for companies such as UPS, and has a patented recyclable filter used by companies such as Colgate, Procter & Gamble, and Smuckers.

In the past four years, Spencer says his company, which is an S-Corp., has been audited three times. The audits have cost him about $45,000 just for accounting work, while IRS fines have totalled $4,000, for things like advertising and meal write-offs during tradeshows.

"Every politician says 'We want to help small businesses because they create jobs,' and we do, but then they turn around make it a hardship," Spencer says. "If they could just give small businesses more of a break, and not audit so damn much, that would help."  

In contrast to Graves' letter, which may or may not have had committee Democrats' blessings, the Small Business Committee's 2011 position on the executive order was unified.

“Our federal government shouldn’t be asking who’s a Democrat and who’s a Republican in the procurement process," Mr. Graves wrote in a letter at that time to President Obama. "They ought to be asking who can get the job done well and for the least amount of taxpayer money. Forcing small businesses to disclose political records will allow this Administration to intimidate the business community and reward political allies."

Last updated: Jun 3, 2013

JEREMY QUITTNER is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
@JeremyQuittner




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