I’ve explained on a number of occasions that when it comes to tax enforcement, the IRS’s ex-ante bark is often far more effective than its ex-post bite.
For example, it’s now abundantly clear that the main purpose of the Foreign Account Tax Compliance Act (FATCA) isn’t to harvest more information about American’s offshore financial activities; it’s to discourage Americans from having any such activities in the first place. FATCA accomplishes this by making it difficult and expensive for foreign banks to comply with its seemingly Torquemada-inspired requirements in respect to U.S. citizen clients.
The deterrent effect has been employed at home, too – to strike fear into the hearts of potential job creators.
Over the spring and summer, the IRS sent letters to thousands of small-business owners, demanding they prove their innocence of tax evasion by explaining why so much of their reported revenue was from credit-card sales. Apparently, too little cash turnover is a “red flag” to the IRS.
But, so is too much cash turnover. As we reported recently, some major U.S. banks, including JPMorgan Chase, have recently informed small-business clients that their total monthly cash transactions will henceforth be limited to $50,000. Their ability to send money abroad would be terminated outright. Some analysts speculate that Chase’s move was prompted by IRS pressure to cooperate in the latter’s small-business crackdown.
Having a well-funded government agency breathing down one’s neck is bad enough. But knowing that its attention is directed at you because you’re not “too big to fail” is particularly galling.
Sound Advice to Ward Off the Feds …
Since 2008, we’ve all seen abundant evidence of corporate criminality, especially from the Wall Street megabanks that play such a critical role in the Fed’s money-printing scheme. That and their massive political donations make the big U.S. financial houses practically untouchable. Not only do these financial aristocrats avoid sanctions for their criminality, their lobbyists pretty much write the nation’s banking laws, anyway.
For the rest of us, it’s the IRS jackboot. Unless we’re smart, that is.
One thing every small businessperson or self-employed individual should do to strengthen his or her defenses against the IRS’s legal larceny is to obtain sound counsel from a qualified tax attorney.
That’s because one of the quickest ways to divert the IRS’s attention is to incorporate your business – a step with numerous options that good counsel can help you navigate.
Besides the protection from liability it provides, appropriate incorporation also puts your tax returns into a different workstream at the IRS. Although you won’t be able to escape the IRS’s auditing algorithms entirely, you can improve your odds by clawing your way out of the small business/self-employment bucket.
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