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The Daily

Small Businesses Remain a Challenge for IRS

Chris Gaetano
Published Date:
Jun 16, 2016
SMALL BOX NO. 2Despite efforts, the IRS still struggles to get small business owners to voluntarily comply with the tax code and accurately report what they made, according to The New York Times. Of the $458 billion tax gap (the sum the IRS believes it is owed but not paid), $125 billion is individual business income. A big reason for this, according to The Times, is that small businesses tend to have a lot of "low visibility" income which is not seen by third parties, such as cash. There's also simple ignorance: The Times said many people who set up as sole proprietorships are not aware of all the obligations that come with it, such as quarterly reporting. The IRS's primary tool for compliance, audits, also tends to have diminishing effects: while those who were recently audited tend to be more compliant, the effect fades every year until, after five, compliance returns back to their original levels. The Times said that the IRS and the Taxpayer Advocate Service are working together to find more ways to drive voluntary compliance, especially given that audits aren't as effective in driving compliance as originally thought.