IRS targets small businesses

The Bush administration, long a stalwart supporter of business—particularly small business—has introduced an Internal Revenue Service (IRS) proposal in its 2007 budget that has small-business advocates ready to fight.

The Bush budget, which was delivered to Congress in February, includes a proposal to decrease the $345 billion tax gap—the amount between what is owed the federal government and what actually is paid.

According to the IRS, $109 billion of the gap is from understated income accounts from small businesses and $39 billion results from underreported self-employed tax accounts. It hopes to begin to trim that amount next year.

In the proposal, the government wants credit card companies to report annual reimbursement payments to merchants. In addition, credit card companies would have to withhold taxes on payments to companies that have not provided valid taxpayer identification numbers. And the Department of Treasury would like credit card companies to report aggregate payments in excess of $600 to sole proprietors.

The proposal also would force government agencies at all levels to report payments made to contractors and withhold taxes if necessary. The Government Accountability Office says 33,000 government contractors in 2005 owed more than $3 billion in unpaid taxes.

In addition, the Department of Treasury may target independent contractors and seek to change the definition of independent contractor; such a change presumably would force current independent contractors into traditional employment relationships, subjecting them to income-tax withholding procedures.

Naturally, small-business supporters generally oppose the proposal because of the burdens it would place on the small-business community and small businesses that correctly report their earnings every year. Small-business advocates would rather see the administration step up enforcement efforts for existing laws.

As Congress begins the process of weeding through the 2007 budget proposal, it will be interesting to see how much of the proposal Congress is willing to grant.

Ambika Puniani Bailey is editor of Professional Roofing magazine and NRCA's director of communications.


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