Knowing exactly what the IRS is looking for concerning compliance has become a more important issue, now that the agency plans to do a better job collecting taxes. The IRS has gotten the word out to its collection people that catching individuals who aren't paying their taxes is as important as helping honest taxpayers.
Recently, many IRS employees were operating very cautiously because they feared that under the strengthened taxpayer rights laws, they could be fired for the way they once did their jobs. But IRS Commissioner Charles Rossotti held a special meeting recently to tell more than 650 collection managers that they can't allow delinquent taxpayers to get away with noncompliance.
Now that President Clinton has asked Congress for a 9 percent increase in the agency's budget, that could mean a tougher IRS stance regarding tax collecting. Some of these funds would be used to hire over 600 additional auditors. The extra money is needed, says the IRS, because "staffing resources devoted to critical compliance and enforcement programs have declined by more than 20 percent over the past five years."
If Congress agrees with Clinton's budget request, the agency expects this new force of auditors to zero in on noncompliance by individuals with incomes exceeding $100,000, especially business owners, professionals and investors in partnerships. In the past three years, the IRS says, audit rates among these taxpayers fell by two-thirds. In addition, taxpayers in this group now account for more than one-half the total income tax paid by individuals. Republicans in Congress have said they're open to the idea that more money might be needed for IRS operations.
Another development that will result in greater IRS scrutiny of small-business activity is the creation of the IRS Small Business and Self-Employed Operating Division. Slated to be fully operational by October of this year, the new unit is part of the agency's restructuring plan which involves setting up four operating units serving specific groups of taxpayers.
The IRS recently named Joseph Kehoe as their commissioner of the small-business division, which will have 39,000 employees working at its New Carrollton, Maryland, facility by the fourth quarter of this year. Entrepreneurs have four to 60 transactions with the IRS per year, the agency points out, and pay $915 billion in cash to the agency-nearly 44 percent of the cash collected by the IRS.
In light of these developments, entrepreneurs would be wise to check out the MSSP guides. Don't wait until it's too late, warns Ely. Most of the guides are available at www.irs.ustreas.gov/prod/bus_info/mssp/index.html. It's also possible to order them from the Government Printing Office by calling (202) 512-1800. Take the time today to understand your industry the way the IRS does-the tax health of your business may depend on it.
Be sure to check out "Discover the Secrets of IRS Auditors, Part 1"
Joan Szabo is a writer in Great Falls, Virginia, who has reported on tax issues for more than 13 years.