Sierra Club Urges Audits of Small-Business Owners
Should the IRS audit small businesses that purchase SUVs for business, writing off most of the purchase? The Sierra Club thinks so.
Turning its attention away from large corporations and towardsmall businesses, the SierraClub has urged the IRS to use its audit power as a weaponagainst entrepreneurs who receive tax breaks for drivingextra-large sport utility vehicles.
The tax code currently allows small businesses to write off asmuch as $25,000 if a vehicle purchased weighs more than 6,000pounds. But environmentalists now say that provision, first enactedin the pre-SUV days of 1978, has become a loophole that encourages smallbusinesses to buy huge, gas-guzzling cars that contribute to globalwarming--and that only the IRS can put a stop to it.
"The only reason the weight limit was enacted was to letbusinesses that use farm trucks, delivery trucks, etc., to get thededuction--not suburban doctors, lawyers and car dealers,"says the Sierra Club's Zachary Roth. "The law specificallydenies this tax break to people with luxury cars. The luxury carexemption was to prevent exactly those people from taking bigdeductions on luxury vehicles that were used primarily as personalvehicles."
The law states that at least 50 percent of the vehicle'smileage must be devoted to business use to qualify for the taxbreak--and that's the part the Sierra Club wants the IRS toaudit. Otherwise, says Roth, the tax code would actually beencouraging people to buy cars that damage the environment."Vehicles with lower fuel economy use more gas, and vehiclesthat use more gas burn more gas, creating more emissions,"Roth says. "Auto emissions contain global warming pollutants,as well as non-global warming pollutants, which are harmful to thehealth of humans."
But small-business representatives have accused the Sierra Clubof treating them like criminals by urging a government agency toinvestigate them on the basis of dubious science and a politicalbias against larger cars. "It's all part of the ongoingattempt by various left-wing groups to demonize SUVs, along withthe people who drive them," asserts Raymond J. Keating, chiefeconomist for the Small Business Survival Committee (SBSC) inWashington, DC. "The Sierra Club offers no evidence thatsmall-business owners are in any way abusing this tax provision.Instead, this turns out to be a public relations stunt to furthertheir environmental agenda at the expense of hard-working,law-abiding small-business owners. Such regulatory costs take atoll on small businesses, their owners and employees, and theeconomy in general."
Accountants in theMiddle
The Sierra Club developed its IRS strategy after interviewingaccountants and reviewing news reports in which small-businessowners openly acknowledged buying SUVs simply to take advantage ofthe tax deduction. Accountants themselves say that while theydon't have any exact numbers on how many additional SUVs havebeen bought as a result of the loophole, they alert their clientsto the SUV write-off as a matter of course. "We have seen agreat increase in clients buying large SUVs," says J. BriscoGassaway III, a CPA with Bunch& Co. in Rocky Mount, North Carolina. "We routinelyadvise clients to purchase large SUVs to take advantage of thisrule."
James Stroh of accounting firm Stroh, Johnson & Co. inWapakoneta, Ohio says it's up to the government to decide whichdeductions should remain and which should go; his job remainssimply to advise his clients on how those deductions affect them."We're looking out for the client--we want them to get thelowest tax burden as possible," Stroh says. "We don'twork for the IRS."
Stroh's stance represents a common view in his professionalcommunity, which rejects the notion that accountants should alsoplay the role of environmental policemen for their clients. And,many accountants note, from the IRS' point of view, the auditstrategy recommended by the Sierra Club is bad for business: Theamount that the agency might collect as a consequence of the auditswould pale in comparison to the cost of the audits themselves. SaysGassaway, "There is not enough money involved to warrant thetime the IRS would need to spend doing the audits."
A representative from the IRS said that due to tax privacy laws,the tax authority could not comment on the Sierra Club'srequest.
SUVs: Safer and Environmentally Friendly?
In addition to questioning the propriety of a plan that woulduse a tax agency to advance an environmental policy, however,Keating also questions the science behind global warming itself. Henotes that more than 17,000 scientists have signed on to the GlobalWarming Petition Project from the Oregon Institute of Science andMedicine, which declares there is "no compelling evidence thathumans are causing discernible climate change," such as thosealleged from auto emissions.
The Sierra Club, however, notes that the world's leadingclimate scientists have warned there is now 30 percent more carbondioxide--the primary global-warming gas--in the atmosphere than acentury ago. The average surface temperature of the earth has risenmore than 1 degree Fahrenheit, they say, and the burning of fossilfuels is the primarily to blame. According to the Sierra Club,America's cars and light trucks alone produce nearly 20 percentof U.S. CO2 pollution--more than all but four countriesworldwide--and transportation is the fastest-growing sector ofglobal-warming pollution in the nation.
Keating also claims that statistically, SUV drivers andpassengers have a much higher accident survival rate than those insmaller cars; if the Sierra Club was actually concerned aboutvehicle safety, he says, it would urge people to abandon lighter,more dangerous cars in favor of safer, heavier vehicles."Physics tell us that bigger and heavier vehicles will besafer," says Keating. "Since the federal governmentimposed [fuel economy] standards, the result has been more deathson the road, because automobile manufacturers were forced to makesmaller, lighter automobiles."
But a recent study by the Alliance of AutomobileManufacturers--a consortium of 10 manufacturers, includingChrysler, Porsche and Toyota--puts challenge to that notion. Itsays that while SUV passengers have better survival rates incollisions, they are nearly three times more likely to be killedfrom a rollover. Still, the alliance acknowledges that rolloversremain only a small fraction of car accidents, and that most peoplekilled in SUV rollovers had not buckled their seat belts.
Meanwhile, New York-based CPA Marc Albaum contends that there isreally no reason for federal tax collectors to sort through suchsafety and environmental issues, or to become the instruments ofpolitical activists from any side of an issue. "It would makeno sense for the IRS to target a group for following the taxlaw," Albaum says. "The IRS takes their orders fromCongress, not the public."
Jennifer Anne Perez, a former Los Angeles Timesreporter and editor for numerous business trade journals, iscurrently a freelance business writer based in New YorkCity.