This April 15, the IRS has entrepreneurship under its thumb
Mary Knox Merrill/The Christian Science Monitor
It is not easy being an entrepreneur in America these days.
The push for higher marginal tax rates, whole new tax programs like the possible VAT tax, and expanding regulation are all making the entrepreneur's already challenging job even more difficult.
And on top of all of that, let's not forget about the zeal with which the IRS is focusing on entrepreneurs.
A new study by the Transactional Records Access Clearinghouse (TRAC) shows that despite a growing federal deficit, IRS audit efforts aimed at the nation's largest corporations have precipitously declined in the last few years and now are at an all time low.
According to Dean Zerbe, alliantgroup National Managing Director and former Tax Counsel on the Senate Finance Committee, "As if April 15th isn't frightening enough for small business owners, now comes news that the IRS has increased audit hours for small and medium businesses by 30% over the last five years, while at the same time decreasing the number of hours spent auditing large corporations by 33%."
TRAC reports that the average claimed tax underreporting per hour for small and medium businesses is $1,025, and for large corporations it's $9,354. The TRAC study shows that over the past few years, despite a big upswing in the number of hours auditing small and medium businesses, the number of no-change audits (audits that resulted in no change to the tax owed) has stayed approximately the same, and the number of dollars collected per hour has also stayed roughly the same. At the same time, the dollars collected per audit-hour of large corporations has gone from $6,594 in 2005 to $9,354 in 2009.
Unlike a large corporation that may have on staff a dozen tax attorneys who would have little to do if the IRS didn't call, an audit for a small or medium business is costly and may cause economic harm to the company - even if the IRS doesn't find anything wrong.
"Often the audit of a small or medium business will require the time and attention of the business owners themselves - time that could be spent improving and expanding their business and hiring new employees," says Zerbe. "While politicians in Washington love to give speeches touting how small businesses are the engines for job growth, revving up IRS audits of small business is like putting sugar in the gas tank. The administration needs to rethink a strategy that we can audit our way to creating new jobs."
Just when we need them most to lead us out of the economic doldrums, entrepreneurs are under attack.
"There has been a serious effort over the past 40 years to preserve endangered animal and plant species. The Bald Eagle, American Alligator and many others have been returned to proper numbers in their respective habitats. With only a few exceptions, this has been a worthwhile venture.
"However, we are now faced with the prospect of an endangered species that could spell the end of American liberty as we know it. That endangered species is the entrepreneur. For centuries, this species has been responsible for generating employment, providing goods and services, supporting the tax base, and moving the creative spirit forward.
"However, the Progressives have mounted a relentless campaign through the media, churches, and government to vilify these small engines of prosperity."
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