IRS Takes Aim at Business Taxes With New Enforcement Guidelines
The Internal Revenue Service is fundamentally changing the way it collects taxes from businesses, in a shift expected to most dramatically affect small operators.
Next spring the IRS will begin sorting business tax returns by industry group instead of by type of return. That means that instead of putting all “sole proprietorships” into one pile--be they deli owners or chiropractors or free-lance writers--just because they all file Schedule Cs with their returns, the agency will now make separate piles for each line of work.
Enforcement agents will then tackle each pile differently, armed with detailed new enforcement guidelines specific to the industry. The agency plans to define more than 100 business categories, covering all work, and develop their 100 guidelines by the year 2000.
IRS Commissioner Margaret Richardson sees the new approach, the Market Segment Specialization Program, as progress.
“We have finally come to realize that you don’t audit a bank the same way you audit a pizza parlor,” Richardson said.
She said the new approach is part of agency efforts to raise taxpayer compliance from 83% to 90% by the end of the decade and is expected to help on several fronts.
First, the guidebooks will acquaint agents with each industry before they head into audits, alerting them to common deceits. Agents can also avoid irrelevant issues, easing one longstanding business complaint that auditors often “don’t know what they aren’t looking for.” Beyond that, the IRS will make the guidelines available to business owners who want help in filing honest returns.
There are doubters, however. Some wonder whether it’s smart to share the guidelines with business owners, who could simply use them to better defeat auditors. Others caution that the whole enterprise hinges on the quality of the guidelines, and at least one industry already has complaints about the book on it.
The IRS insists that the new program will not specifically target any type or size of business. But accountants outside the agency predict its impact will be strongest on small businesses and cash-based businesses of all sizes, because those groups have the worst records for paying up.
The IRS has a list of nearly 80 industries for which it is writing or planning guidebooks. They are as various as art dealers, escort services, seaports, fishing and coal mining. The agency already has guidelines on nine industries, including trucking, taxicabs, bed and breakfasts and lawyers.
Experts outside the IRS describe the new approach as a logical way to home in on deadbeats and get them to pay.
Small businesses will feel the impact of the IRS’ new specialization work most, said Cornelius Coleman, who helped shape the program as the North Atlantic regional IRS commissioner before joining the accounting firm of Coopers & Lybrand in New York.
