Sounds like the letters are a form of intimidation and fear geared towards small businesses. One lawmaker says the letter’s tone implies wrongdoing from the start. The premise seems to be prove that you are right or else its wrong. The letters are computer generated based on industry averages and sent out if they fall outside the averages. The questions appear generally vague. For example one letter the IRS sent is headlined, "Notification of Possible Income Underreporting." It notifies the business owner "your gross receipts may be underreported" and says they must complete a form "to explain why the portion of your gross receipts from non-card payments appears unusually low." Gross receipts from non-card payments is such a general and vague question in itself without specifying additional criteria its almost laughable. There are many ways to validate gross receipts by the IRS ,whom many are supposedly trained in accounting besides tax, such as cost of goods sold in relation to Gross Receipts, inventory usage, bank deposits relating to receipts, etc. The letters seem unnecessary and unwarranted unless the IRS agents/employees do not understand the very accounting and tax principles that make up a profit and loss statement. The IRS uses industry averages just as they do for individual income taxes and because they are averages a particular business within an industry may fall within or out of the range due to various factors concerning gross receipts like size, less market share or an extraordinary event such as a strike, disaster, shortage of materials for manufacture, etc, or a different accounting method of revenue recognition under generally accepted accounting principles.
Posted on: Sun, 11 Aug 2013 08:34:17 +0000
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