The IRS Picks On the Little Guy

Tax audits of big companies have declined as the Internal Revenue Service shifts its attention to smaller businesses.

The Internal Revenue Service has cut the amount of time it spends auditing large companies by a third since 2005, while reducing the number of large companies audited by 22%, according to a new study. In fact, last year the IRS audited only one in four corporate returns reporting assets of $250 million or more, says the study, which was conducted by the Transactional Records Access Clearinghouse (TRAC), a research organization sponsored by Syracuse University.

Why is the IRS ramping up audits of smaller companies? One reason is "the drumbeat regarding the 'tax gap,'" the difference between taxes owed and actually collected, the IRS has stated repeatedly that smaller businesses are the core of the tax-gap problem.

But targeting smaller companies is bad for the economy on the whole, since audits consume the time and attention of business owners. While politicians in Washington love to give speeches touting how small businesses are the engines for job growth, revving up IRS audits of small business is like putting sugar in the gas tank.

Wishing you many happy returns,