Increasing Education, Compliance Assistance
Will Reduce “Tax Gap”
WASHINGTON, D.C. - A confusing and complex
tax code is at the heart of why the typical small business
with fewer than 20 employees spends over $1,200 per employee
to comply with tax paperwork, recordkeeping, and reporting
requirements. It is also much of the source of the so-called
“tax gap” of uncollected revenue from small businesses,
according to testimony given today by Thomas M. Sullivan,
Chief Counsel for Advocacy of the U.S. Small Business Administration
before the U.S. House of Representatives Committee on Small
Business.
In his testimony, Sullivan noted that “Small
businesses, as defined by the SBA size standard, make up over
99 percent of all U.S. businesses and employ over one-half
of the American workforce. Perhaps even more importantly,
small firms create over two-thirds of the net new jobs annually,
and recently led the American economy out of a recession.
Yet, small business accomplishes this even while facing a
regulatory compliance burden that is roughly 60 percent greater
per employee than that faced by larger firms, and a tax compliance
burden more than twice as large.”
He added, “At issue then is how compliance
can be improved and the tax gap narrowed without adding to
the burden of small business. My office favors a balanced
approach-- one that includes commensurate doses of education,
compliance assistance, and enforcement.”
Sullivan said that the source of the so-called
“tax gap” is, “the uncertainty and confusion
in how to comply that creates the biggest compliance burden.
It is also this uncertainty that increases non-compliance
rates for small business filers over what they would be under
a simpler code.”
He concluded, “The best way to ensure
that small business compliance rates increase is to simplify
the tax code, thereby removing the ambiguity filers face when
determining what to report, and to increase education and
assistance programs aimed at informing small business owners
what the IRS expects them to do when preparing their taxes.”
The Office of Advocacy, the “small business
watchdog” of the government, examines the role and status
of small business in the economy and independently represents
the views of small business to federal agencies, Congress,
and the President. It is the source for small business statistics
presented in user-friendly formats and it funds research into
small business issues.
For the complete testimony send an email
request to john.mcdowell@sba.gov.
