• NASE TaxTalk Expert, CPA Testifies to Congress on the Tax Gap
• Tax Reform Panel Moves into Second Phase
• SBTV.com Airs Bush’s Remarks from SBA Expo ‘05

NASE TaxTalk Expert, CPA Testifies to Congress on the Tax Gap

Micro-businesses need a simpler tax system and more education and assistance to improve tax compliance and lessen the tax gap, said National Association for the Self-Employed (NASE) tax consultant Keith Hall last week. Hall testified at a House Small Business Committee hearing titled “Closing the Tax Gap and the Impact on Small Businesses.” Both the U.S. House of Representatives and Senate held hearings on the tax gap, the difference between taxes owed to the government and taxes paid, within the last two weeks after the IRS released its tax compliance research for 2001. That research found a 15 percent overall noncompliance rate. Underreporting was the largest cause of noncompliance. Understated income accounts for more than 80 percent of underreporting, not overstated deductions. The IRS and other federal organizations contribute much of this underreporting to independent contractors or other non-employees. Some officials, including National Taxpayer Advocate Nina Olson, have recommended withholding on non-employee payments to ensure proper filing. Hall attested to the difficulties this would have on micro-business owners. “For sole proprietors and business owners hiring independent contractors, the proposals for imposing withholding in the range of two to five percent on payments made to contractors will only add to the compliance burden with a whole new set of perplexing and – for many – unmanageable and costly filing requirements,” testified Hall. Hall also cited inequities in the proposed withholding including the requirement to withhold on the basis of gross income versus taxable income. Withholding on gross income overstates employers’ liability since it often includes legitimate deductible expenses. Additionally, the withholding requirement would only apply to sole proprietors, which is discriminatory on the basis of business structure. Despite numerous recommendations for additional withholding, IRS Commissioner Mark Everson stated at the House Committee on Small Business hearing that he did not at this time support this proposal as a means of dealing with the tax gap. Additionally, Hall addressed enforcement issues and the Fiscal Year 2006 IRS budget. He voiced concern over the shift in funds from tax assistance and outreach programs to enforcement activities. “The more assistance offered to taxpayers and the simpler it is to understand and comply with tax laws, the more taxpayers will accurately meet their tax obligations,” said Hall. “However, increased enforcement at the expense of taxpayer education will not in the long term accomplish sustained, improved compliance.” Hall pointed to the complexity of the tax code as the ultimate reason for the tax gap. The NASE supports tax code simplifications to ease the time and cost burden of tax compliance for micro-businesses. In addition to testifying at this Congressional hearing, the association recently submitted comments to the President’s Federal Advisory Panel on Federal Tax Reform.

Tax Reform Panel Moves into Second Phase

The President’s Advisory Panel on Federal Tax Reform has nearly completed its first stage of comprehensive review of the existing tax system and will move into the second stage to consider specific reform proposals, according to a statement by the panel. The panel called for public comment on the current tax system and heard from thousands of Americans concerned with where the tax code stands. The statement released by the panel focused largely on the inequity and unfairness of the Alternative Minimum Tax. The AMT will probably be a focal point of tax reform proposals by the panel. The high cost of tax compliance on entrepreneurs was mentioned as something important to consider. The small business community had an opportunity to address the panel during a public meeting of the panel in March. The National Association for the Self-Employed also submitted comments in March. Two meetings will take place next week in Washington, D.C. to consider possible tax reform proposals. The NASE is watching this process closely to see what it means for micro-businesses. To read the entire statement by the President’s Advisory Panel on Federal Tax Reform, visit www.taxreformpanel.gov/index.shtml. To let your legislators know your views about federal tax reform, visit the NASE online Legislative Action Center at http://advocacy.NASE.org.

SBTV.com Airs Bush’s Remarks from SBA Expo ‘05

Thousands of entrepreneurs and small business owners who were unable to attend the Small Business Administration’s Expo ’05 can hear President George W. Bush’s speech for National Small Business Week three times this week by logging onto www.SBTV.com. SBTV will air the President’s remarks from 5pm to 1am (EDT) during SBTV primetime on Monday- May 2nd, Wednesday- May 4th, and Friday-May 6th. Microsoft is sponsoring the streaming video presentation of the President’s remarks on the role of small business. President Bush used his appearance at the national meeting of small business owners to make a major policy statement on energy and to thank America’s entrepreneurs. “I appreciate the fact that our small business owners are taking risks and pursing dreams, and as a result, you’re creating jobs for millions of our citizens.” The President also stressed the innovation side of small enterprise. “I appreciate the fact that the small business entrepreneurs are some of the greatest innovators in our nation.” To view Bush’s remarks, visit the NASE’s partner, SBTV at www.sbtv.com.