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Briefing: April 2003

What you need to know about IRS audits, the Internet sales tax, Bush's plan for the SBA, commuter relief, and Squeaky's, the other place to play golf in Augusta.

The IRS Targets Small Biz

S corps and partnerships among those to receive new scrutiny.

Companies with less than $10 million in assets paid an astounding $915 billion in taxes for 2001, but that turns out to be not nearly enough. The Internal Revenue Service estimates the total "tax gap" -- the difference between what all taxpayer groups pay and what they owe -- to be at least $278 billion. Small businesses, with more room to maneuver than many other taxpayers, account for a big chunk of the uncollected revenue, and thus can expect special attention from the agency in the future. Some 34,000 small business owners will get face-to-face audits over the next two years as part of a new research program. The IRS is also scrutinizing K-1 forms filed by flow-through entities like S corporations and partnerships. In the past, the agency found it difficult to match the profits reported on those forms with the personal returns of business owners. Thanks to new software, they're getting much better at it. "We want small business taxpayers to feel that if they're doing what they're supposed to do, then everybody else is, too," says James Kehoe, the new head of the division that deals with companies with less than $10 million in revenue. "And that if they're not," he adds, "the IRS will deal with that -- abruptly, quickly, efficiently, and fairly." --Kenneth Klee

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How Resilient was My Valley

The epicenter of the dot-com bubble has taken one hell of a beating, several new reports confirm. Silicon Valley has shed 127,000 jobs since the first quarter of 2001 -- about 9% of the work force -- and annual salaries tumbled 6%. Still, Valley veterans say boom-bust cycles are merely a way of life: Since the '60s, when defense contracting collapsed and the semiconductor industry replaced it, every decade has seen one. They note that the number of new jobs created over the last decade still tops 300,000, and capital investments increased 11% in the last quarter of 2002. Plus, the environment is perfect for start-ups: Office vacancies are high, rents have fallen 67% to a six-year low, and the talent pool remains top-notch. "The sentiment here is one of perpetual hopefulness," says venture capitalist Steve Jurvetson, who is now funding companies that mix science and information technology. --Matthew Fogel

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The Tax Man Eyes Web Sales

With states struggling to close yawning budget shortfalls, supporters of Internet sales taxes are again making their case. Members of the Streamlined Sales Tax Project (SSTP) -- a group currently pursuing e-commerce sales tax legislation in 30 states -- met in January at the Hyatt Regency in Tampa to coordinate strategy. Diane Hardt, co-chair of the SSTP, argues that an Internet sales tax will "level the playing field for small business." She cites anecdotal evidence that brick-and-mortar retailers from musical-instrument sellers to hardware outfitters routinely witness customers finding what they want by browsing in stores, and then ordering online to avoid paying sales tax. Though there's much haggling to be done, the SSTP would like the sales tax on Internet businesses (and mail-order companies, too) to be collected via certified software or service providers. "Our goal is to reduce the compliance burden," says R. Bruce Johnson, a Utah state tax commissioner and an active SSTP member. --Patrick J. Sauer

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Search Industry Shaken, and Sued

It has been a rough two years for executives, but it's been even worse for the people who recruit them. In the past 18 months, total revenue in the recruiting industry has shrunk by an estimated $1.5 billion, says Joseph Daniel McCool, editor of Executive Recruiter News. He also reports that 500 firms -- 10% of the industry -- have gone out of business recently. That's a far cry from the go-go '90s, when it was common for recruiters to achieve revenue growth of 15% annually. "It's been an unprecedented reversal of fortunes," McCool says. A pending lawsuit in Florida also clouds the industry's future. Mount Sinai Medical Center, a Miami-based teaching hospital, is suing blue-chip search firm Heidrick & Struggles International, claiming it hired a CEO that the firm characterized as a "financial success" -- even though he reportedly presided over tens of millions in losses at two previous jobs. Mount Sinai claims it lost $64 million during this executive's tenure, and that Heidrick & Struggles is liable. While many in the industry argue that customers should take greater, rather than less, responsibility for their searches, "the industry has never been comfortable talking about accountability," admits Mark Jaffe, president of Wyatt & Jaffe, a search firm in Minneapolis. --M.F.

Are You Mogul Material?

That's the question historian Maury Klein set out to answer in researching The Change Makers: From Carnegie to Gates, How the Great Entrepreneurs Transformed Ideas Into Industries. The author -- whose biography of Jay Gould was a Pulitzer finalist in 1986 -- tells staff writer Nadine Heintz about his latest book, due out this month.

What characteristics did the great entrepreneurs have in common? Above all, persistence. They focused on ideas and figured out how to make them work. Wal-Mart founder Sam Walton put it most succinctly. When people asked the discounter how he had become so successful, he'd reply, "Friend, we just got after it and stayed after it."