Taxpayer Advocate Offers Tips for Improving Small Biz Relations
The National Taxpayer Advocate this week released a report that has been getting some media coverage for its recommendations like offering payments of up to $1,000 to taxpayers whose cases are mishandled, but tucked inside the lengthy study are suggestions for how the Internal Revenue Service could better handle its relationship with the small business community.
If the agency takes Nina E.Olson's recommendations to heart, small businesses may see some IRS marketing, outreach and greater scrutiny coming their way. Olson is a federal official hired by the Treasury secretary and operates independently within the IRS.
The IRS expects the number of individual returns from small business or self-employed taxpayers to increase by about 33 percent between 2006 and 2014, while the number of individual returns from other taxpayers is expected to decline by about 2 percent during the same period.
In the 472-page study covering tax issues affecting businesses of all sizes as well as individual taxpayers, the advocate recommends that the IRS develop a strategic plan for providing services, education and outreach to small firms. The advocate's office recommends that the strategy should be modeled on the Taxpayer Assistance Blueprint, a multi-year plan for providing services to individual taxpayers to help them meet tax obligations. The office suggests that, like the blueprint, the small business plan should be based on research.
The study, which is an annual report to Congress, posits that this research may reveal that some small business taxpayers need face-to-face education, such as workshops. "The IRS can use research to narrowly target its outreach and education efforts," reads the report.
Olson's office also recommends that the IRS provide small business representatives at the larger federal taxpayer assistance centers.
Additionally, the IRS should research and test a targeted education campaign to promote compliance by changing attitudes and social norms among certain populations - such as small businesses. The research would identify where an education campaign might be effective and then test the campaign. "For example, for those small business taxpayers who do not trust the government, the campaign might emphasize the privacy of taxpayer information," the taxpayer advocate suggests.
IRS researchers also should seek input from stakeholders like representatives of the small business community. Although the IRS Office of Chief Counsel request input from stakeholders when it creates its "priority guidÂ¬ance list," the advocate recommends that "more focused" efforts could help in identifying guidance that could make it easier for taxpayers to comply.
The report notes that there's a small business-related research project in progress focusing on the behavior of taxpayers operating in a cash environment. The IRS division dealing with small businesses and the self-employed is working with a vendor to interview small business ownÂ¬ers who primarily operate with cash to determine what types of education may change their behavior to bring them in compliance by reporting the cash income.
The report also fingers the IRS for doing little to analyze the effects user fees have on taxpayer behavior, demand for IRS services or its ability to achieve its policy goals. The report notes that small business owners have testified in congressional hearings on the negative consequences of high user fees on their decisions about whether to offer employees retirement plans. But the agency hasn't determined whether user fees have reduced the number of retireÂ¬ment plans small businesses have set up for employees. It also hasn't determined if the fee reduced compliance by small businesses that have retirement plans.
The report includes a detailed section on small business owners and self-employed individuals who have a disability. It notes that people with disabilities "have always struggled to find employment, largely because of the numerous barriers facing this population. Some may seek to overcome these barriers through self-employment or by running their own businesses. The IRS has conducted little outreach or education for small business owners and self-employed individuals who have a disability."
Olson's office says outreach to these taxpayers is increasingly important because some professionÂ¬als believe that being self-employed or owning small businesses is an increasing trend in the disability community. A significant obstacle facing disabled individuÂ¬als in starting their own businesses is the inaccessibility of business materials, according to the report. In turn, the IRS should ensure that tax administration is not a barrier to disabled individuals entering business, but is a resource for these entrepreneurs.
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