IRS Auditing More Small Businesses

Just what small business owners need right now -- more scrutiny from the IRS. A recent study from Syracuse University reveals that the IRS is spending more time auditing small businesses. At the same time, it's cut back on audits of larger companies.

Syracuse's Transactional Records Access Clearinghouse, or TRAC, studies federal spending patterns, as well as staffing and enforcement trends.

Data TRAC researchers obtained under the Freedom of Information Act showed that since 2005, large-company audits have declined despite Congress providing IRS with more money to hire additional agents specifically trained to audit complicated, major-company returns. Instead, IRS hours spent on big-company audits sank 33 percent.

Meanwhile, businesses with less than $10 million in assets saw 30 percent more IRS audits. Mid-sized companies also got more IRS attention, with audits rising 13 percent.

As you might expect, the IRS didn't find more money by spending more time auditing smaller businesses. I learned years ago as an entertainment-industry secretary that movie budgets were getting bigger because "you can't steal $1 million from a $1 million picture." Bigger companies have more revenue, and so tend to have more opportunity for hiding income or taking big, bogus tax deductions.

Sure enough, the average underreported income IRS found at the small companies was about $1,000. At the larger corporations, it was more than $9,000.

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