IRS seeks credit card transaction information: treasury plan eyes $100 billion in lost small-business tax

Nation's Restaurant News, Feb 19, 2007 by Richard Martin

Washington -- Restaurateurs are among those targeted by a new Treasury Department plan to audit credit card transaction data to help collect some of what the Internal Revenue Service has estimated is nearly $100 billion a year in unpaid taxes on hidden small-business income.

The proposal to allow the IRS to obtain sales data from credit card companies for comparison with business owners' reported revenues is one of more than a dozen tax collection methods put forth by Treasury officials this month. Those proposed tactics, part of President Bush's budget proposal, come to light as the Democratic majority in Congress is pressing to close the payment gap in order to fund spending programs without raising new taxes.

As detailed in a recent New York Times report, lobbying groups representing small-business owners are mobilizing in opposition to methods of collection they say might pose burdens for law-abiding business owners. The United States Chamber of Commerce and the National Federation of Independent Business, or NFIB, are spearheading the movement, which is taking aim principally at the plan to let the IRS obtain information about business income from credit card companies.

The National Restaurant Association has become involved with the two trade groups opposed to the audit authority.

"This issue is something that's important to us, and we have reached out to both those entities," an NRA spokeswoman told Nation's Restaurant News.

The Times' report noted that a similar audit proposal last year by the Bush administration was accorded little if any attention from the Republican-led Congress, but that the mood on Capitol Hill had changed significantly since last month's power shift and the Democrats' adoption of strict "pay-as-you-go" budgeting rules.

Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, was quoted as saying that closing the tax collection gap now is a top priority, ahead of any consideration of roll-backs of President Bush's tax cuts.

Extrapolating from audits of tax returns from 2001, the IRS recently estimated that a total of $290 billion went uncollected that year as a result of reporting and payment deficiencies, with more than 80 percent of that amount owed by individuals. Of that amount, the IRS said it lost $109 billion on unreported business income, nearly all of that from sole-proprietors, such as restaurateurs, dry cleaners, plumbers and painters. Most of the suspect payment shortfall was said to relate to W-2 income forms and the Form 1099 used to report payments to independent contractors.

Explanations of the audit authority sought for the IRS indicate that the agency would obtain credit card sales data from the card issuers, not from individuals' businesses, and then would initiate tax return audits only if the value of the charged transactions suggested an underreporting of taxable income.

However, the NFIB has argued that such a system somehow could hurt legally compliant businesses.

The NRA's senior vice president of government affairs and public policy, John F. Gay, could not be reached for comment.

IRS Commissioner Mark W. Everson was quoted as having told the Senate Budget Committee last year that methods could be employed to recover "between $50 billion and $100 billion without changing the dynamic between the IRS and the people."

However, the Treasury Department reportedly now has indicated that credit card comparisons and the other collection tactics proposed in the Bush budget would net less than $10 billion in added revenue. The IRS currently audits fewer than one out of every 435 tax returns, and it's not known how the new credit sales reviews might change that.

In addition, the IRS wants to crack down on understated profits from stock sales, which the agency estimated resulted in about $11 billion in uncollected capital gains taxes in 2001.

rmartin@nrn.com