Robert J. Fedor, Esq., L.L.C.

Small business owners often singled out by IRS

Small business owners must keep close tabs on both income and expenses and are often called upon to justify both. When it comes to tax matters, small business owners are often subjected to increased scrutiny by the Internal Revenue Service. Highlighting this point is a recent move by the IRS to target roughly 20,000 small business owners.

These businesses recently received written communication from the IRS related to possible disparities in cash reporting. Formally referred to as "Notification of Possible Income Reporting", the notices are causing concern among many small business owners who automatically assume they are being accused of a tax crime or error.

While IRS officials claim the notices are merely being used by the agency in an attempt to explore whether or not the underreporting or un-reporting of cash transactions is an issue, some politicians argue the language contained within the notices is accusatory and misleading.

For example, one phrase contained within the letter reads, "your gross receipts may have been underreported". Any communication or notice from the IRS likely raises red flags for any individual taxpayer or small business owner. A formal notice with language such as this, however, can cause small business owners to panic and question their business practices.

While the IRS asserts the notices are merely exploratory in nature, many believe they are confusing in nature. Small business owners who have been asked to produce documentation related to their cash transactions or other tax-related matters would be wise to consult with a financial and legal professional. In some cases, the receipt of such notices may lead to additional IRS fines, penalties and even criminal charges.

Source: Forbes, "IRS Targets Thousands Of Small Businesses For Extra Scrutiny," Robert W. Wood, Aug. 11, 2013