IRS SBSE priorities: 2004 and beyond.

• Author: Fiedelman, Ronald S.
• Position: Small business/self-employed

At the July 2004 IRS/Texas Society of CPAs Liaison Committee Meeting, an IRS representative outlined numerous Small Business/Self-Employed (SBSE) priorities for 2004 and the next few years. This item summarizes throe priorities.

Although the SBSE is not the largest division in terms of the number of taxpayers served, the taxpayers falling into this category present the most compliance challenges. Most of these taxpayers use professionals to prepare their returns. Thus, through its Taxpayer Education & Communication pre-filing compliance activities program, the SBSE is enlisting the support of the professional community, to help meet the challenge.

SBSE Strategic Goals

Primary strategies for FYs 2004, 2005 and beyond intend to:

* Increase compliance among SBSE taxpayers;

* Prevent the formation, use and effects of promoted abusive tax avoidance transactions;

* Improve service to SBSE taxpayers;

* Improve business results, by enhancing operational practices aid processes;

* Reduce the burden on small business taxpayers; and

* Ensure that E-File and E-Pay become the preferred option for these taxpayers.

Priorities

In addition to the primary strategies, there are numerous supporting priorities.

Abusive tax avoidance transactions:

These include domestic trust arrangements in which taxpayers use trusts to hide the true ownership of assets and income or to disguise a transaction's substance.

Off-shore credit card schemes are another form of abuse. Taxpayers use cards issued by tax-haven-domiciled banks to repatriate anonymously and covertly off-shore funds that may not have been previously taxed.

The Service is also targeting credits taken under the Americans with Disabilities Act. Promoters generally entice investors into believing they are entitled to a disabled access credit for nonqualified expenditures.

Employment tax schemes that promote employee leasing, pay wages in cash and, in some cases, the false payroll tax forms, have also come under IRS scrutiny. The IRS will ,also identify and take action against promoters of all these types of arrangements, when necessary.

High-income/high-risk taxpayers:

The compliance risk associated with these taxpayers has centered on the IRS's ability to verify income and deductions through its various matching programs (such as Schedule K-1 matching), especially for income reported by corporations or passthrough entities.

High-income nonfilers: The population in this category is growing. The IRS is...