Some Small Businesses Suffer Close IRS Scrutiny

They often deal in cash and can't fight back

WASHINGTON — Worried the Internal Revenue Service might target you for an audit? You probably should be if you own a small business.

 A new study by the National Taxpayer Advocate used confidential IRS data to look at tax compliance in different industries and found that people who own construction companies or real estate rental firms might be more likely to fudge their taxes than business owners in other fields.

The IRS uses the information to target taxpayers for audits. The taxpayer advocate, Nina Olsen, runs an independent office within the IRS. She got access to the data as part of an effort to learn more about why some taxpayers are more likely to cheat than others.

The study focused on small-business owners — sole proprietorships, to be specific — because they have more opportunity than the typical individual to cheat on their taxes. Many small businesses deal in cash, while most individuals get paid in wages that are reported to the IRS.