Ag, Small Business Groups
Eyeing Income Tax Reform

WASHINGTON —(AP)— Small business owners, farmers and ranchers are keeping one eye on an IRS overhaul plan speeding through Congress and the other on a wish list for replacing the U.S. tax code.

Several provisions in a bill passed by the tax-writing House Ways and Means Committee would fortify taxpayer rights, including one that shifts the burden of proof in court proceedings from the taxpayer to the IRS.

"The response from the IRS agent usually indicates that the customer is wrong," said Terry Neese, an Oklahoma City business owner and past president of the National Association of Women Business Owners. "We may get a bill with interest and penalties and in the same mail receive a refund check for the same tax payment. The burden of proof must be on the IRS, not on the taxpayer."

Neese told the story of a CPA who, in handling a client's audit, was intimidated by an IRS agent who had examined the CPA's own personal tax return.

She and other small business and farm representatives are seeking some kind of simplified, flat income tax system that ideally would carry 100 percent deductions on employee health insurance, on home mortgage interest and on home offices. They also have ideas for the interim while lawmakers design a new IRS.

"For its part, small business has an enormous stake in that outcome and a tremendous opportunity to help re-shape the new system," Sen. Christopher Bond, chairman of the Small Business Committee, said during a hearing of the panel.

"Each hour that an entrepreneur spends completing a tax form is a completely non-productive hour that could be spent providing goods or services or plowing and planting and harvesting," said Bond, R-Mo.

The legislation would set up an 11-member oversight board of private citizens to help draft the IRS budget and assist in computer modernization and other long-term projects.

It's crucial to give small business a seat on the proposed IRS oversight panel, said Bennie Thayer, president and CEO of the National Association for the Self-Employed.

The voice of small business was also on House members' minds as the Ways and Means Committee hammered out details of the legislation. Rep. Kenny Hulshof, R-Mo., amended the overhaul proposal to require the treasury secretary to consult with small business owners on incentives to file returns electronically.

"Small business was forced by Congress to electronically file payroll taxes, and IRS did not seek input from business on how to implement that mandate," Hulshof said. "There was a strong-arm attempt by IRS, a letter they sent out to businesses that suggested sanctions for non-compliance, and it was a really heavy-handed approach."

Until a new system is in place, farmers are pursuing elimination of estate and capital gains taxes, said Charles Kruse, president of the Missouri Farm Bureau Federation.

"Much of the unnecessary complexity of the current tax code results from efforts to double- and triple-tax income and from taxpayers trying to avoid that multiple taxation," said Kruse, who also serves on the American Farm Bureau Federation board of directors.

"Each time a farmer or rancher or any small business person makes a decision ... unfortunately, we must consider and consult with our silent partner, the internal revenue tax code."

The bill is expected to pass the House before lawmakers adjourn this month, but its future in the Senate remains unclear. Also in the mix is a Republican-sponsored proposal to scrap the U.S. tax code in 2000, which is intended to generate debate over how to proceed.

The effort to reform the tax system has been spurred on by incidents like these:

First came the flood, then came the Internal Revenue Service.

The record Midwest flood of 1993 ruined thousands of homes, cars, sofas and refrigerators. The damage was so great that a federal disaster was declared, allowing people to deduct the losses from their income taxes.

Three years later, 202 individuals or households in Missouri got notices from the IRS that challenged the value of loss they had claimed for homes or other possessions.

Eighty of those filers have been instructed to pay a total of $418,000 in back taxes and penalties, an IRS spokesman said. Twenty-four of the audited filers made their cases and didn't have to pay anything, but the 98 others remain under the gun.

The trick is in proving the value of loss.

Andrew Ferguson, of the South Shore area of Missouri’s St. Charles County, said he had to pay about $3200 because an IRS audit rejected most of his statement of loss on the contents of his home. Ferguson said any receipts he had were lost in the flood.

"I just figured if something was lost in the flood, we ought to be able to deduct it," said Ferguson, 56. "But the IRS wouldn't allow any of it because I couldn't come up with receipts."

The IRS doesn't comment on individual tax cases. Ferguson said he started thinking about his case after U.S. Senate hearings into IRS auditing practices. An agent from Texas testified in Washington Sept. 24 that the IRS considered lower-income taxpayers easier targets for audits.

"I got to thinking about that," Ferguson said. "It seems to me that just about everybody down here got audited."

Brenda Riley, 56, of St. Charles, lost a mobile home and its contents when floodwater inundated the Princess Jodi Village mobile home park just north of St. Charles in early July 1993.

Ms. Riley said she estimated her cost in renovating and raising the home after the flood of 1986. She said she included a $35,000 government loan from that year.

The IRS audit allowed only $2800 of the more than $40,000 she claimed. Ms. Riley said she has had to pay back $10,000.

"I felt like a victim again," she said. "I get my life going again, and the IRS shows up. It's not like I'm Leona Helmsley. I still live in a mobile home."

Linda Jackson of Boschertown, who helped prepare Ms. Riley's returns, said 19 of her clients were notified of IRS audits, far more than her annual average of three.

"I wish the IRS would have been a little more understanding," she said. "They weren't lenient enough with these people who suffered a disaster. We're not talking about people who just put down whatever numbers came out of their heads."