The Small Business Guide to IRS Negotiations

Running a small business means keeping track of a litany of expenses: wages, insurance, operating costs and last, but never least, taxes. But instead of getting hit by the taxman once a year like individuals, small businesses have to pay quarterly, and with the economy draining consumer spending, many small businesses are finding themselves short on cash.

When faced with these shortages, businesses must make smart, albeit painful, cuts. "If there's concern going into the year, businesses have to drop insurance, maybe lay someone off," says Molly Brogan, a vice-president of public affairs at the National Small Business Association. This sentiment is echoed by Roni Deutch, founder and president of Roni Deutch Professional Tax Corporation, who says, "Every dollar they save on business is a dollar in their pocket. I look at business owners and say you've got to reduce your expenses rather than not pay the IRS."

According to a TRAC report, funded by Syracuse University, the number of audits on companies making less than $50 million a year has increased substantially. "From 2004 to 2006, the number went up 150%," says Jody Milanese, NSBA's government affairs director. The report found that smaller corporations were more attractive to audit because they involved less work and the IRS could get through more cases than when dealing with larger corporations.

Going through an audit can cost a lot or a little depending on the level of complexity. "If it was a simple, non-disputable audit, it could cost somewhere around $2000," says Milanese. "If it's an audit of any type of complexity, it could run anywhere in the tens of thousands of dollars." She cites CPA and attorney charges of $200 to $500 an hour as a big chunk of the cost. One Midwest based CPA, she says, told her they cannot do an audit for less than $7500. And the financial cost isn't the only problem. "If you’ve ever owed the IRS or gone through an audit you are under severe anxiety, stress, depression," says Deutch.