Survey: Fast Growth Small Businesses Expect Big Tax Jump

Sept. 22, 2004--Even as taxes are set to jump and the Internal Revenue Service is planning on auditing more midsized businesses, many high growth companies haven't taken the time to look ahead and plan, according to PricewaterhouseCoopers' Trendsetter Barometer.

Interviews conducted by PricewaterhouseCoopers (PWC) with the CEOs of 392 of the fastest growing private companies, as identified by sources like the Inc. 500, found that nearly half of them expect their business taxes to surge by 40% over the next two years.

The survey also revealed that more than 60% of the CEOs weren't aware that the IRS is beefing up staff in order to target companies with assets valued between $10 million and $250 million. In March, IRS Commissioner Mark Everson requested a 5% budget increase and 5,000 additional agents for 2005. Fifteen percent of the respondents reported being audited in the past five years.

Surprisingly, even with the anticipated tax changes, 54% of the respondents said that tax planning hasn't been completely worked into their business plan over the next two years. Sixty-five percent said they didn't increase the amount of time or effort spent on tax planning in the past two years.

At the heart of the tax increase is the end of two significant tax breaks, according to Marty Janowiecki, a tax partner in PWC's Private Company Services group. The Foreign Sales Corporation status has been labeled as an illegal subsidy by the World Trade Organization and is expected to be repealed. Additionally, the depreciation allowance for capital spending projects is slated to expire at the end of the year.

"It is likely that the most dynamic of the surveyed companies have been beneficiaries of these two tax programs," said Janowiecki.

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