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The IRS gets more sophisticated in its pursuit of tax cheats

The Internal Revenue Service is no friend to small businesses -- some Georgia business owners may know this from firsthand experience. Each year, the IRS blames small businesses and individuals who are self-employed for failing to fulfill their tax obligations, and now states are getting increasingly sophisticated in the way they seek out instances of tax evasion.

Today, state tax collectors across the country are taking new approaches to ensuring they get the money they believe the state is owed. One way is to withhold licenses. For example, if a restaurant owes taxes, the state will refuse to renew its liquor license until the business pays up.

In some states, like Georgia, tax collectors are taking advantage of other data resources to determine whether a business or individual is shirking its tax duties. As we discussed last August, Georgia has been working with LexisNexis to scan tax information and see how it matches up with personal information. Along these lines, a few states have even teamed up to share data that will better enable them to catch tax cheats.

Finally, some states have put jail time on the table. In these states, judges have little reservations about sending those who don't pay their taxes to jail.

Filing taxes for a small business is no simple task. With a multitude of forms to fill out accurately, it is not hard to make a simple math mistake or forget some paperwork. The IRS, however, is not a forgiving entity. For this reason, many small business owners choose to work with an attorney to make sure they are protected when going up against the IRS.

Source: Bloomberg Businessweek, "How States Are Cracking Down on Small Business Tax Cheats," March 11, 2014

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