IRS Targets Small Businesses for Scrutiny

Tax collectors assume everybody is hauling in bags of cash

The Internal Revenue Service has sent out letters to 20,000 small businesses since fall 2012, notifying them of "possible income under-reporting."

The IRS says it is trying to identify businesses that get "an unusually high portion" of their reported sales through credit card transactions. The thinking is that a lot of cash transactions might be going unreported.

To decide who gets letters, the IRS compares a business's credit card and cash receipts with industry averages.