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

Small business owners subject to more scrutiny by states and IRS

It's nearly time for individuals and small business owners to once again file their tax returns. As millions attempt to collect tax-related documents and figure out what they may owe, several states are gearing up to identify small business owners who may have made errors when filing their 2013 tax returns.

The Internal Revenue Service reports that the agency loses billions of dollars annually as a result of small business owners who fail to pay the entire amount of taxes owed. As a result some states and the IRS claim to be losing out on billions of dollars in tax revenue. To combat these tax deficiencies, some states are taking a more aggressive approach to both identify and collect from those small business owners who fail to pay what the IRS claims they owe.

According to a report published in Bloomberg BNA, many states are investing in technologies to aid in the recovering of unpaid taxes. For example, states are using technology to identify and target small business owners in certain industries. Among those small businesses currently being targeted are car dealerships, beer and liquor store owners and gas station owners.

In addition to developing new technologies to better identify alleged tax cheats, states are also sharing information with officials in other states where a business owner may own property or operate other businesses. If a taxpayer fails to pay taxes in one state and is owed a return in another, the tax return amount would automatically go towards paying off the tax debt in the other state.

The ramped up efforts by states and the IRS likely mean that the tax returns of U.S. small business owners will be subject to even more scrutiny. The penalties for failing to file a tax return or failing to pay taxes may have negative personal and financial implications. For these reasons, small business owners who have concerns related to tax matters or who face criminal charges related to tax crimes would be wise to contact a defense attorney.

Source: Bloomberg Businessweek, "How States Are Cracking Down on Small Business Tax Cheats," Patrick Clark, March 11, 2014

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