PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Bipartisan IRS Reform and Tax Compliance Relief

By at 28 March, 2018, 9:15 am

Small Business Insider

by Raymond J. Keating-

Reforming and modernizing the Internal Revenue Service (IRS) in order to reduce complexity and cut the costs of tax compliance is a big priority for American small business. Therefore, it’s good to see bipartisan efforts moving forward in Congress on this front.

Why does this matter? In October 2017 congressional testimony, Kristie Arslan, entrepreneur-in-residence for the Small Business & Entrepreneurship Council, explained:

“With over 2.4 million words, the tax code is so overwhelming that it is extremely difficult for small business taxpayers to reliably and accurately comply with the breadth of tax regulations.  Most especially, the smallest businesses among us who cannot afford an accountant or CFO to consistently monitor the tax code and tax policy are the most disadvantaged.

“According to a 2016 Tax Foundation study, Americans will spend more than 8.9 billion hours complying with IRS tax filing requirements in 2016.  The majority those hours was spent complying with business tax regulations (2.8 billion hours) and individual income tax requirements (2.6 billion hours.)  The price tag for this compliance burden was $409 billion last year.

“On top of the compliance burden, our tax code has not kept pace with our changing economy.  Technology has been a game changer in the way we do business, evident by the explosion of ecommerce and the sharing economy.  Policymakers need to consider changes to the tax code to bring it into the 21st Century.”

Introduction of the Bipartisan “Taxpayers First Act”

On March 26, as noted in a media release from the House Ways and Means Committee, “Oversight Subcommittee Chairman Lynn Jenkins (R-KS) and Ranking Member John Lewis (D-GA) published a discussion draft entitled ‘The Taxpayer First Act.’”

According to the discussion draft, this act brings together provisions “from at least 18 different bills, most of them bipartisan and bicameral.” The effort is an attempt “to modernize the agency’s information technology, infrastructure, and services,” and to “return the IRS back to its ‘service first’ mission.” Small business owners certainly like the sound of that.

Among the provisions of interest to small business are:

The demonstration of probable cause to seize funds. The Bank Secrecy Act (BSA) requires the reporting of currency transactions exceeding $10,000. However, a “Committee investigation … found that the IRS was seizing funds that appeared to have been structured,” i.e., cash transactions falling below the $10,000 threshold. But “numerous small business owners had legitimate reasons for keeping their transactions under $10,000, such as insurance policies that only protected cash-on-hand up to $10,000.”

Under the “Taxpayers First Act,” the IRS would have to show probable cause that payments structured to avoid the BSA “are derived from an illegal source or connected to other criminal activity.”

Along these same lines, under The Taxpayer First Act, “if a court determines the government should return funds and interest to an individual whose funds were seized by the IRS based on allegations of structuring, the interest will be exempt from income tax.”  The bill also modifies the rules for seizures of “perishable goods” to only perishable goods.

Establishment of the Internal Revenue Service Independent Office of Appeals. The bill proposes that all taxpayers have access to the administrative review process, allowing for their cases to be heard by an independent decision maker. According to the draft, “For the first time, this provision codifies the IRS Independent Office of Appeals and provides for additional Congressional oversight over decisions to withhold taxpayers from the administrative review process.” Taxpayers would also be able to access “the case against them” as opposed to having to go through the time-consuming and complex Freedom of Information Act (FOIA) process. This provision “would require the IRS to provide the taxpayer with their case file prior to the start of any dispute resolution process.”

Limitation on access of non-Internal Revenue Service employees to returns and return information. The legislation would prohibit people from outside the IRS “from examining books, records, and witness testimony as part of an examination other than for the sole purpose of serving as an expert.” In addition, the bill ensures “that only IRS employees or the Office of Chief Counsel are able to question a witness under oath.” The outsourcing of key cases to powerful law firms has been very controversial, with good reason, and can lead to abusive practices where outside firms (and their actions) are not help into account.

Taxpayer Rights Strengthened. Various provisions within the “Taxpayers First Act” would also beef up various taxpayer rights as well as IRS efforts to fight identity theft.

More Bipartisanship

Another bipartisan bill developed by the House Small Business Committee last year also addresses common sense solutions that would modernize the tax system and provide relief for small businesses.

SBE Council is a strong supporter of the “Small Business Tax Simplification Act,” H.R. 3717, which was introduced in October 2017. In a letter to House Small Business Committee Chairman Steve Chabot (R-OH) and Ranking Member Nydia Velazquez (D-NY), SBE Council president & CEO Karen Kerrigan wrote:

“Some of the thresholds in our tax system have not been updated since the 1950s. Various provisions have not kept pace with technological advancements and the modern economy. Other policies just never made sense.  H.R. 3717 provides simple fixes that reduce costs, complexity and uncertainty.

“As proposed in H.R. 3717, SBE Council fully supports the modern thresholds for self-employment income and Form 1099-Misc filings (the latter of which aligns with 1099k reporting requirements); aligning quarterly reporting deadlines; allowing business owners to both offer and participate in cafeteria plans; allowing a deduction for certain health insurance costs for self-employment tax purposes; allowing voluntary withholding agreements and training services between contractors and ‘gig’ entrepreneurs without impacting worker classification; and uniform standards for the use of electronic signatures.”

The passage of H.R. 3717 is a key priority for SBE Council as noted in our 2018 Policy Agenda for Entrepreneurs and Small Businesses: Tax System Modernization. The legislation – whether advanced on its own, or as part of a “Phase II” on tax reform being discussed by Republican congressional leaders – would make significant and positive changes for our nation’s entrepreneurs, and also makes sense as the bill’s provisions would also improve efficiency at the IRS.

Productive bipartisanship is not dead in our nation’s capital. That is evidenced by these efforts to modernize and reform the IRS. Passing such measures and having them signed into law would be positive steps for U.S. entrepreneurs and small businesses, and therefore, for our economy.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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