Author Topic: 80% of new IRS revenue will come from small businesses earning under $200K: tax experts  (Read 805 times)

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Offline Kamaji

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80% of new IRS revenue will come from small businesses earning under $200K: tax experts

By Lydia Moynihan
August 3, 2022

Small business owners may soon be in for a lengthy and expensive battle with the IRS, tax experts warn.

A key provision in the Inflation Reduction Act — which throws an extra $80 billion to the IRS to improve the agency’s collection of under-reported income — will end up targeting small business owners to pay for the legislation, according to nonpartisan watchdog the Joint Committee on Taxation.

The group estimates that between 78% and 90% of the estimated additional $200 billion the IRS will collect will come from small businesses making less than $200,000 annually.

Just 4% to 9% would come from businesses making north of $500,000 a year — meaning the legislation is in sharp contrast to President Biden’s longstanding claim that he wouldn’t raise taxes on anyone making less than $400,000.

“The IRS will have to target small and medium businesses because they won’t fight back,” Joe Hinchman, executive vice president at National Taxpayers Union Foundation, told The Post. “We’ve seen this play out before … the IRS says ‘We’re going after the rich’ but when you’re trying to raise that much money, the rich can only get you so far.”

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Source:  https://nypost.com/2022/08/03/why-irs-80b-expansion-is-a-nightmare-for-small-business/
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Offline Killer Clouds

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Offline Free Vulcan

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Combined with retaining all the loopholes in the code, the Dem party has completed the full circle from the party of the little guy to the party of the globalist elite.

They had better hope small business doesn't fight back. And what will the IRS do if those same businesses do their taxes correctly? Just make stuff up?
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Offline Kamaji

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Combined with retaining all the loopholes in the code, the Dem party has completed the full circle from the party of the little guy to the party of the globalist elite.

They had better hope small business doesn't fight back. And what will the IRS do if those same businesses do their taxes correctly? Just make stuff up?

What, exactly, is a "loophole"?
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Offline IsailedawayfromFR

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What, exactly, is a "loophole"?
What, exactly, is IRS revenue?
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Offline Kamaji

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What, exactly, is IRS revenue?

Revenue collected by the Internal Revenue Service.
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Offline Free Vulcan

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What, exactly, is a "loophole"?

Something a wealthy person gets that you and I don't because we don't have the extra income to hide.
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Offline IsailedawayfromFR

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Revenue collected by the Internal Revenue Service.
Really?  I thought that was income taxes.

Are we now a nation of providing revenue to government agencies?
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Offline Kamaji

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Really?  I thought that was income taxes.

Are we now a nation of providing revenue to government agencies?

Whatever Chief.
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Offline Kamaji

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Something a wealthy person gets that you and I don't because we don't have the extra income to hide.

In other words, a tax deduction that the speaker doesn't get because the speaker doesn't qualify for it.
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Offline Free Vulcan

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In other words, a tax deduction that the speaker doesn't get because the speaker doesn't qualify for it.

Right, but when the IRS goes after the middle class with a fine tooth comb trying to squeeze every last cent they can, the hypocrisy is glaringly obvious.

And some things are loopholes and not just tax deductions. They have to be structured and setup sometimes in torturous arrangements, but they bring a tax windfall. It's more complicated than just a line item on a sheet.
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Offline Kamaji

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Right, but when the IRS goes after the middle class with a fine tooth comb trying to squeeze every last cent they can, the hypocrisy is glaringly obvious.

And some things are loopholes and not just tax deductions. They have to be structured and setup sometimes in torturous arrangements, but they bring a tax windfall. It's more complicated than just a line item on a sheet.

If you have to struggle to set it up in a tortuous arrangement, then it's not a loophole, it's tax evasion, and will almost certainly be knocked down if it gets examined or audited.

What is a "loophole"?  It appears to be about as real as the "price gouging" the democrats keep ranting and raving about.
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Offline Free Vulcan

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If you have to struggle to set it up in a tortuous arrangement, then it's not a loophole, it's tax evasion, and will almost certainly be knocked down if it gets examined or audited.

What is a "loophole"?  It appears to be about as real as the "price gouging" the democrats keep ranting and raving about.

That's my definition of loophole. The wealthy have been doing it for years and the IRS rarely does much about it.
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Offline Kamaji

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That's my definition of loophole. The wealthy have been doing it for years and the IRS rarely does much about it.

That is not a loophole, for the simple reason that it's not legal.  Embezzlement is not a "loophole", either.

And the IRS does quite a lot about it, it just doesn't get into the news that often.  Firstly that's because most of the evasion was shut down in the 1960s when the individual tax shelter industry was shut down using the at-risk rules and the passive activity loss rules.  Secondly, the IRS and the courts routinely focus on economic substance and use doctrines such as step transaction to shut down a lot of the other arrangements.  Thirdly, it's become a lot more expensive to engage in these sorts of shenanigans because it's a lot harder to get a tax opinion one can rely on to avoid penalties if the structure gets taken down (and tax advisers can be penalized themselves for issuing dodgy tax opinions, so there's fewer of them to go around).

If one wants to see a spectacular take-down of a sham trust structure with lots of other bells and whistles thrown in, look at the case involving the founders of Michaels.
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Offline Free Vulcan

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That is not a loophole, for the simple reason that it's not legal.  Embezzlement is not a "loophole", either.

And the IRS does quite a lot about it, it just doesn't get into the news that often.  Firstly that's because most of the evasion was shut down in the 1960s when the individual tax shelter industry was shut down using the at-risk rules and the passive activity loss rules.  Secondly, the IRS and the courts routinely focus on economic substance and use doctrines such as step transaction to shut down a lot of the other arrangements.  Thirdly, it's become a lot more expensive to engage in these sorts of shenanigans because it's a lot harder to get a tax opinion one can rely on to avoid penalties if the structure gets taken down (and tax advisers can be penalized themselves for issuing dodgy tax opinions, so there's fewer of them to go around).

If one wants to see a spectacular take-down of a sham trust structure with lots of other bells and whistles thrown in, look at the case involving the founders of Michaels.

And the rich have those in plenty. They find every little thing they can and push it as far as they can without getting caught. Sad reality is the IRS has been more focused on the little guy since at least Obama.
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I can't believe that Republicans are going to sit by and do nothing and allow Democrats to get away with this.
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Offline Kamaji

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And the rich have those in plenty. They find every little thing they can and push it as far as they can without getting caught. Sad reality is the IRS has been more focused on the little guy since at least Obama.

The IRS is focused on the "little guy" simply because that is where the money is.  The little guys make an outsize number of easy-to-catch mistakes, and don't have the wherewithal to fight, so the IRS "ROI" on auditing the "little guy" is much higher than auditing a lot of the bigger guys.  However, most bigger guys do undergo audits on a more regular basis.  They just don't go around talking about it, and the democrats like to lie about what the IRS statistics say to make it look like there are all these undeserving rich guys running around stealing the IRS blind - which isn't the case.

Many large companies, for example, are under permanent audit, and many even have permanent offices devoted to the IRS and to the various state auditors that continually nip at them like sandflies at the beach.

Finally, the era of the classic "tax opinion" died about 20 years ago.  That was the era when one could get a tax opinion that was based on a dodgy set of facts, or a description of the facts that was not really in accordance with economic reality, and the opinion would then generally only address one isolated part of the facts and would, for example, ignore application of the step transaction doctrine.

The IRS went after both the wealthy who benefitted from those opinions - primarily because they would claim to be exempt from penalties for underpaid tax because they had a tax opinion that gave them reasonable cause for the position they took - as well as the advisers who were giving those opinions out, sometimes like candy (I am aware of a practitioner who had a dodgy TiC opinion that he had written once, and which he would then have a junior associate fill out the name of the new client, change the names of the entities involved, and issue it for a fee of $20k or so; he no longer does that, and I believe that the two or three firms he was doing that at are still paying off some of the fines that were levied on the firms for that practice).

And the simple fact is, if one is a wealthy person with cross-border investments, there is a whole heck of a lot more ambiguity in how the tax law applies to some of their investments.

Very simple case:  how is a German GmbH & Co. KG classified for U.S. tax purposes?  Is it a corporation, a partnership, a disregarded entity?
« Last Edit: August 04, 2022, 04:57:11 pm by Kamaji »
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Offline andy58-in-nh

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I can't believe that Republicans are going to sit by and do nothing and allow Democrats to get away with this.

How often in the past have they acted differently?
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How often in the past have they acted differently?

Certainly not since 2006.  Just a reminder to everyone why Republicans are not worth supporting. @roamer_1
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Offline bilo

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Right, but when the IRS goes after the middle class with a fine tooth comb trying to squeeze every last cent they can, the hypocrisy is glaringly obvious.

And some things are loopholes and not just tax deductions. They have to be structured and setup sometimes in torturous arrangements, but they bring a tax windfall. It's more complicated than just a line item on a sheet.

They know most small businesses don't have the money to fight. The deductions can be legitimate, but the person defending themself must hire attorneys and accountants. The advise most accountants will give their clients is it's cheaper to pay the IRS than fight.

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Offline bilo

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I can't believe that Republicans are going to sit by and do nothing and allow Democrats to get away with this.

It certainly is one way to diminish voter enthusiasm.

Why vote for Pubs if nothing is going to change. They won't even put up a fight for us.
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Online roamer_1

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Certainly not since 2006.  Just a reminder to everyone why Republicans are not worth supporting. @roamer_1

Wish it weren't so... But it is true. Republicans are not supporting Conservatives. And really never have.  :shrug:

Offline Kamaji

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They know most small businesses don't have the money to fight. The deductions can be legitimate, but the person defending themself must hire attorneys and accountants. The advise most accountants will give their clients is it's cheaper to pay the IRS than fight.



The biggest problem small business owners typically have is that they don't have the documents to substantiate deductions they claimed, or they took an extremely aggressive position on an item and claimed it was deductible when, in point of fact, there were really good arguments that it wasn't.

That being said, it can be expensive to try and put together the necessary documentation after the fact, and sometimes it ends up being less expensive to accept disallowance of a deduction than to try to get all of the substantiation put together, particularly if it involved payments made to third persons that were made several years before.
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Offline libertybele

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It certainly is one way to diminish voter enthusiasm.

Why vote for Pubs if nothing is going to change. They won't even put up a fight for us.

That's now my point of contention; if Republicans aren't going to fight for conservatism and for their constituents, why vote for them?

As has been stated many times in this forum, failed leadership (McConnell, Ryan, Bohner) has played a significant role in the demise of the Republican party and conservatism and they too frequently make back room deals and reach across the aisle.
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