There’s a new(er) IRS commissioner in town, and he’s doing some extra cleaning. Mark Everson, who took office in March of 2003 has made security his main focus of the IRS. And now small business is facing increased scrutiny.

Enforcement is taking the main stage due to the tax gap currently sitting at about $345 billion. This amounts to all the money that is missing due to non-filers and those who claim the wrong income and don’t pay correctly.

Small business audits more than doubled in 2005, an increase to 17,867 from 7,294 in 2004. Some small business owners have voiced a strong disagreement with the audits, claiming it unfair that small businesses are being targeted and will face penalties for small or unintentional mistakes. Large business owners also have the advantage of the financial ability to hire highly-paid accountants to fend off those mistakes.

Everson feels that a focus on small business will help to minimize the national deficit and avoid possible tax increases in the future. 80% of the tax gap is a result of under-reported income and the majority of culprits tend to be small businesses.

Some experts believe that the funds the IRS is using for enforcement could be better spent on educating the public on an increasingly complex tax code. After all, chances are that the IRS may not even see the revenue they expect to find in small business audits to make up for the funds spent to find it.

Everson claims that there is nothing to fear if you are doing your best to report your income and expenses accurately come tax time. Nothing to fear, that is, except for the time an audit takes away from your business.

Sources:
• Business Week: IRS Sets Its Sights on Small-Biz
• MarketWatch.com: Last-minute tax tips for Schedule C filers
• GovEXEC.com: IRS enforcement activities bring in record revenue

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