Small Business Committee: Statement on Full Committee Hearing on “Health Care Reform in a Struggling Economy: What’s on the Horizon for Small Business?”

STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
House Committee on Small Business
Full Committee Hearing on “IRS Oversight: Are Tax Compliance
Costs Slowing the Economic Recovery?”
Wednesday, April 1, 2009

“Every American circles April 15th on their calendar. But outside of a few over-eager CPA’s, most people don’t look forward to tax day. While this time of year brings an annual headache for us all, it is especially daunting for our nation’s entrepreneurs.

Historically, tax code complexity has been the greatest source of frustration for small businesses. No surprise there-- the tax code contains over 200 small business provisions. Simplification is key, and this committee has held hearings on the issue. But today, in light of historic economic challenges, that matter has taken a backseat to more immediate concerns.

This afternoon, we will explore ways in which the IRS can help entrepreneurs meet tax obligations during a recession. We will also discuss the role of the agency in handling incentives within the stimulus.

In February, small businesses finally got their stimulus. Within that bill were critical tax incentives, from Bonus Depreciation to Net Operating Loss extensions. This is the kind of relief entrepreneurs need. But, like most tax policies, these initiatives are complex. The IRS needs to ensure their meanings are clear. Before small firms can take advantage of incentives, they need to understand how they work. Otherwise, the benefits of these provisions-- and of the stimulus overall--may be diminished.

Unfortunately, clarification has never been an IRS strong point. After all, we are talking about the agency that handles the 54,000 page tax code. But with new stimulus policies on the books, the IRS will have to improve communications. Part of that improvement process should include increased outreach, and enhanced client services. Entrepreneurs need to know they can count on the IRS to answer their tax questions quickly and accurately. In an era of growing uncertainty, those kinds of resources are critical. Especially considering recent increases in small businesses audits.

Unlike big businesses, small firms don’t have an army of tax attorneys and accountants. As a result, they are largely defenseless against the IRS, making them easy targets. In the two years between 2005 and 2007, small business audits shot up 41%. Meanwhile, investigations of the biggest companies plummeted 40%.

It doesn’t matter who you are or how big your businesses is-- no one has the right to skirt their taxes. But at a time when small business audits are up, and big business audits are down, you have to wonder-- where are the priorities? Small firms have been battered enough by the recession. The last thing they need is the added nightmare of an IRS investigation. In the face of a deepening recession, tax policies should be a means for small business growth, and not the straw that breaks the camels back.”