Small Business Reading Room

Friday, July 29, 2005

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S Corporation reporting compliance is the subject of new IRS study

This week, the IRS announced that they will launch a new study to assess the reporting compliance of S Corporations.

The study will examine 5,000 randomly selected S Corporation tax returns from the years 2003 & 2004.

The IRS says they that this study is focusing on proper reporting, rather than looking out for criminal activity. IRS spokesman, Bruce Friedland, as quoted in
"The focus of this study has more to do with compliance and eliminating the confusion corporations may have in filing returns; the IRS isn't using this study as a means to uncover willful tax evasion,"

The last study of S Corp compliance was back in 1984. That was before the tax code was adjusted to make S corp a more tax-friendly entity. The total number of S corporations has risen from 724,749 in 1985 to 3,154,377 in 2002.

So if the goal is not to catch tax cheats, why does it matter?

For one, Audits can be expensive. Assuming that you'd require representation, your costs can add up- and it's probably safe to assume that this won't be a typical audit.

The goal is to find out where reporting mistakes are made. The IRS will be using a fine tooth comb to look for statistical data. Being through will not only allow the IRS to do a better job of education on proper reporting practices, it will also allow them to develop a profile to make it easier to red flag returns in the future.

Another reason why this is significant?

LLC's and partnerships should read the writing on the wall. It's not a huge stretch to assume that studies of other business entities are likely to be coming down the road in the future.

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Thursday, July 28, 2005

Congress strikes a blow for freedom

The Central American Free Trade Agreement passed the house last night on a 217-215 vote causing quite a stir in the media.

I cannot imagine what the 215 who voted no were thinking.

CAFTA is a way for us to help the disadvantaged in the world and, at the same time, help consumers in the USA - all of us. A no vote would have signaled the decline of the USA in the world. Passage indicates to the world that the USA is still interested in freedom, capitalism and prosperity for all.

Now, in order to reap the fruits of this agreement, the entrepreneurial class must engage the Central American economies in trade.

Wednesday, July 27, 2005

Innovation helps identify victims

A simple innovation has come out of jolly old England that will help emergency workers identify victims of accidents, terrorism or other medical emergencies.

I received an email today that I thought might just be a rumor. It said emergency workers in England encourage people to add an entry in thier cellphones under ICE for In Case of Emergency. Here you may put all the contact information for the loved one who you would want contacted in case of emergency. For more information on the email and the truth behind it see

I like this kind of simple innovation. It makes use of a technology most of us have handy already and, best of all, it costs the user nothing.

Now, if we can only find a way to use cameraphones to stop terrorists...

Tuesday, July 26, 2005

AHP: association health plans

The House of Representatives is floating the old AHP solution to the high cost of health insurance again. Association Health Plans allow associations and such to offer health plans that are federally regulated. Federal regulation is, so far, much lighter than the regulations in the fifty states. Therefore the cost of these plans is much lower.

This plan will make the federal regulation of healthcare a much more succulent target for lobbyists and lead to more federal regulations so each special interest gets its' cut.

Instead of allowing power to move from the States to the Federal government, the Congress should act on the legislation authored by Rep. John Shadegg (R-Ariz.). His bill, (H.R. 2355), would allow consumers to purchase health insurance from any State. This will lead to a more efficient market in health insurance much as it has in credit cards and banking. Some States will offer more attractive regulatory regimes in order to attract a critical mass of health insurance providers. The resulting lower costs would benefit consumers and the industry both.

The status quo allows only very large employers to opt for federal (light) regulation. Small business deserves to have the marketplace respond to its needs too.

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