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Occasionally an article will pop up about the hard-edged stance the IRS takes with small businesses, and particularly sole proprietorships<\/a>.<\/p>\n Always, the implicit assumption is that the IRS treats specific groups unfairly.<\/p>\n Just the hint that a group with so much power might be biased in some way really gets under my skin. Then again, the media can be biased too, so I decided to take matters into my own hands.<\/p>\n READ: Estimated tax payments – tips for managing your small business<\/a><\/p>\n The IRS publishes an annual report on its website called the Internal Revenue Service Data Book.<\/p>\n The report furnishes the public with statistical information, including:<\/strong><\/p>\n I took a closer look at the examinations category, which includes data on the types of entities receiving the most scrutiny.<\/p>\n The IRS chooses to examine 0.9% of all tax returns filed in the United States. Roughly half a million examinations are conducted “in the field” (the harrowing face-to-face interaction involving sweat and hand-wringing). Over one million are conducted via correspondence, or by mailing a request for additional substantiation or documentation. So that is the norm. Now let’s look at small businesses.<\/p>\n Business earnings<\/strong><\/p>\n<\/td>\n Percentage examined<\/strong><\/p>\n<\/td>\n Field examinations<\/strong><\/p>\n<\/td>\n Correspondence examinations<\/strong><\/p>\n<\/td>\n<\/tr>\n Under $25k<\/p>\n<\/td>\n 1.8%<\/p>\n<\/td>\n 76,043<\/p>\n<\/td>\n 577,729<\/p>\n<\/td>\n<\/tr>\n $25k-$100k<\/p>\n<\/td>\n 2.1%<\/p>\n<\/td>\n 63,375<\/p>\n<\/td>\n 38,030<\/p>\n<\/td>\n<\/tr>\n $100k-$200k<\/p>\n<\/td>\n 3.6%<\/p>\n<\/td>\n 24,320<\/p>\n<\/td>\n 5,763<\/p>\n<\/td>\n<\/tr>\n $200k and up<\/p>\n<\/td>\n 3.4%<\/p>\n<\/td>\n 19,135<\/p>\n<\/td>\n 1,864<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n The general consensus is correct inasmuch as small businesses are examined more frequently than the average. However, if you take a look at the number of correspondence examinations for firms earning less than $25k, you will see that there are roughly 7.5 times the number of examinations conducted via correspondence than in person. The IRS is taking a closer look at this group but is not truly scrutinizing and squeezing them.<\/p>\n READ: Tax excuses the IRS won't buy<\/a><\/p>\n The aberration is caused by the Earned Income Tax Credit<\/a>, which the IRS claims was the basis for 487,408 examinations of small business returns. So while the percentage of businesses earning less than $25k is double the average, examinations conducted in person are actually more rare than the average.<\/p>\n\n
How the IRS targets small businesses<\/h3>\n
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