Tax Complexity and the IRS
• The two reasons small-employer taxpayers most frequently cite for using tax professionals are to assure compliance and complexity of tax law and related requirements.
• Sixty-one (61) percent of small-employer taxpayers typically consult a tax professional prior to making a major financial decision for the business.
• Though every portion of the 15 major portions of the Internal Revenue Code (and one of the states’) evaluated does not impact every small-employer taxpayer, 47 percent think that they do not have a good understanding of even one of the 16 portions; another 17 percent think they have a good understanding of only one; and, yet another 8 percent think they have a good understanding of just two.
• Of the 15 major portions the Federal Tax Code (and one of the states’) evaluated, small-employer taxpayers most frequently think that they understand: their state’s sales and use tax rules (29% a good understanding), employment/payroll taxes (29%), and expensing (25%). Those portions they claim to understand least frequently include: passive activity rules (7% a good understanding), the Alternative Minimum Tax (7%), and the R&D tax credit (6%).
• Of the 15 major portions the Federal Tax Code (and one of the states’) evaluated, the provisions small-employer taxpayers most frequently rely on their tax professional to understand for them are: depreciation (59% rely on a tax professional), methods of accounting (59%), amounts subject to self-employment tax (56%), capital gains/losses (54%), and the Alternative Minimum Tax (53%).
• The most frequently applicable parts of the Code to small-employer taxpayers in their judgment are methods of accounting, depreciation, expensing, employment/payroll taxes, and capital gains/losses.
• The least frequently applicable parts of the Code to small-employer taxpayers in their judgment are corporate dividends, pension plans/profit-sharing, R&D tax credit, home-office deduction, estate and gift tax, and independent contractors.
• Over the last three years, 38 percent of small-employer taxpayers visited the IRS Web site to obtain tax-related information. Visitors’ most frequent activity on the site was downloading forms. Of those who visited, 75 percent found the site useful for the intended purpose while 9 percent did not.
• Of the 58 percent who have a basis to judge, 31 percent assess the notices and correspondence they received from the IRS in the last three years to be clear and understandable; 23 percent did not.
• While half of those who have a basis to judge think that IRS penalties levied in the last three years were justified, the other half did not. Still, considering all dealings with the IRS over that time frame, 53 percent of small-employer taxpayers give the IRS a satisfactory or better rating; 9 percent give the agency an unsatisfactory or worse rating.