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IRS Increases Scrutiny of Small Businesses
Author: Scarinci Hollenbeck, LLC
Date: October 15, 2013
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The Internal Revenue Service has initiated a large campaign to crack down on offshore tax evasion and other egregious tax law violations that could result in large recoveries of hidden tax income, penalties, and interest. However, the IRS is also increasing its focus on small business tax practices, even if the potential for recovering sizable payments is small, a new analysis reveals.
IRS and Justice Department representatives recently spoke at the American Bar Association Sections of Taxation and Real Property Fall CLE Meeting, during which time they affirmed that federal tax agencies are taking on a higher share of smaller criminal employment tax cases, Bloomberg Law reports. Employment violations by small businesses range from failure to make Medicare and Social Security payments to misclassifying employees as independent contractors. Panelists theorized that larger corporations have sufficient resources and legal support to ensure maximum compliance with employment tax laws. However, they noted that smaller companies with fewer financial, tax and legal support may be more likely to commit employment missteps.
“Often you will see an employer who has a course of conduct over quite a long period of time,” Margaret Leigh Kessler, assistant chief of the Western Criminal Enforcement Section, Tax Division at the Department of Justice, told Bloomberg. “They are taking aggressive action to actively hide assets once the IRS has determined they are not complying with their employment tax obligations [and] they’re lying to the IRS, who is looking into their employment tax.”
According to a separate report in Businessweek, the IRS recommended roughly 3,700 prosecutions for various employment law violations for the year ending September 2012. The analysis also suggests that certain sectors are more likely to be audited than others – such as construction contractors and real estate rental agents – which are more likely to attract federal tax agencies’ attention.
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