With a continuously growing mountain of regulatory red tape, forthcoming Obamacare restrictions and a number of other bureaucratic encumbrances to deal with in addition to living and breathing the work they do, America’s small-business owners have it hard. Unfortunately, the Internal Revenue Service could make it harder than ever this year to run a small business.
Findings from a study conducted by the National Taxpayer Advocate, an internal IRS office, suggest that the tax collection agency has determined small businesses to be the most likely tax scammers, raising the propensity that they will be most heavily targeted for audits.
The IRS says that it does not base audits on factors like geographic region or employment type, but chooses audit victims according to how they score on its Discriminant Inventory Function (DIF).
“If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability,” states an IRS publication.
But the National Taxpayer Advocate information shows a pretty clear relationship between the 1 percent of people the IRS audits each year: They often get paid in cash, they own small businesses and they live in wealthy parts of the Nation.
Reportedly, sole proprietors in New Carrollton, Md.; College Park, Ga.; Beverly Hills, Calif.; and Newport Beach, Calif., are in particular danger of receiving an audit this year. Those regions harbored the highest number of tax cheats in 2009, according to the study.
Americans throughout the Nation who own construction companies or real estate rental firms are also likely to come under increased IRS scrutiny.