The IRS is cracking down on small businesses

The IRS says it is trying to identify businesses that get “an unusually high portion” of their reported sales through credit card transactions. The thinking is that a lot of cash transactions might be going unreported.

To decide who gets letters, the IRS compares a business’s credit card and cash receipts with industry averages.

One recipient was the owner of a baking equipment supply company (who preferred to remain anonymous). The IRS sent her a letter on May 28 saying that 80% of her $549,955 in annual revenue came from credit card swipes.

http://money.cnn.com/2013/08/19/smallbusiness/irs-crackdown/index.html?iid=Lead

WASHINGTON, July 24 (Reuters) – The U.S. Internal Revenue Service is pursuing tax enforcement cases against companies over the issue of “stateless income,” a senior agency official said on Wednesday in a reference to corporate profits that are not taxed by any country.

Erik Corwin, an IRS deputy chief counsel, said there were international tax disputes with companies, “most involving consequences of complex restructurings designed either to create stateless income or to affect a tax efficient repatriation.”

“So those are a family of cases that are in the pipeline and being looked at,” he told tax lawyers in a speech in Washington.

IRS Pursuing Crackdown On ‘Stateless Income’ Tax Loophole: Official

In this report, the Inspector notes that employers and workers alike can seek determinations about worker status from the IRS. See TIGTA Report No. 2013-30-058, Employers Do Not Always Follow Internal Revenue Service Worker Determination Rulings. Nevertheless, the report says millions of workers are misclassified as independent contractors instead of employees. These employers are dramatically underpaying employment taxes, and that hurts everyone, the report claims.

IRS Inspector Urges Crackdown On Mislabeling ‘Independent Contractors’ – Forbes