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As someone whose life’s work is helping small businesses navigate our nation’s complex tax system, I have witnessed firsthand how the Internal Revenue Service has become an outsized force that too often targets those least equipped to fight back. While the agency has long maintained that its enforcement efforts are focused on large corporations and the ultra-wealthy, the truth is that small businesses and middle-class families bear the brunt of its actions.
The IRS often investigates businesses that take advantage of legal tax breaks, and it’s a lot easier for them to go after the little guy than to take on the armies of lawyers and accountants that big businesses have at their disposal. This imbalance is not only unfair, but it is also damaging our economy, killing jobs and undermining the entrepreneurial spirit that defines America.
In March, former IRS whistleblowers Gary Shapley and Joseph Ziegler were promoted to leadership positions at the Treasury Department with the mandate of reforming the IRS. This is a welcome development. Shapley and Ziegler certainly have their work cut out for them.
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Time and again, IRS audits fall disproportionately on small businesses and individuals making less than $400,000 a year. Larger corporations can afford to absorb the burden of lengthy audits, but for a small business, an audit can be devastating. The process is time-consuming, expensive and distracting, often forcing business owners to divert resources away from serving customers, paying employees and growing their companies.
A 2023 Government Accountability Office report revealed that more than 90 percent of audits are against middle-class families and small businesses under the $400,000 threshold. It is clear that major corporations and billionaire tax cheats are not the primary targets in the IRS’s crosshairs.
Thankfully, the previous administration’s desire to expand the IRS by tens of thousands of new agents was thwarted by President Donald Trump, who announced a hiring freeze in January to protect small businesses and middle-class families from being swept into an audit dragnet. But, Trump’s action also underscored a critical truth: the IRS still wields immense power with far too little accountability, and without serious reform, that power will continue to be abused.
The broader economic consequences of this imbalance are enormous. Small businesses are the backbone of job creation in America, yet they are being discouraged from investing, hiring and expanding because they fear the IRS will punish them for success.
I have spoken with countless entrepreneurs who quietly hold back on growth because they don’t want the extra scrutiny. This chilling effect is invisible to most policymakers, but it is real. When entrepreneurs choose caution over expansion, jobs are not created, innovation is stifled and communities miss out on economic opportunity.
Meanwhile, the compliance burden gives large corporations a competitive advantage, because they can hire teams of professionals to handle audits and disputes while smaller firms are left exposed. The result is a system that entrenches big business and suppresses competition, the exact opposite of what a healthy free-market economy should promote.
We can and must do better. Reforming the IRS should begin with rebalancing its priorities. Enforcement is important, but it should not come at the expense of fairness and service. Congress should establish clear limits on how many small business returns can be audited each year and require the IRS to justify its audit selections with transparent metrics. Independent appeals processes must be strengthened so that small businesses can contest government overreach without going bankrupt in the process.
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Any new IRS funding should be redirected toward improving taxpayer services, simplifying compliance, and providing timely guidance. The IRS should also be required to publicly report audit outcomes, including how many audits end with no changes or in favor of taxpayers, so Americans can see for themselves whether enforcement is being carried out fairly.
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Small businesses are not asking for special treatment; they are asking for a level playing field. They are willing to pay their fair share, but they should not be disproportionately burdened simply because they lack the resources to fight back. America’s prosperity has always been built on the backs of entrepreneurs willing to take risks and create opportunities. If those individuals believe every step forward might trigger a costly audit, many will hesitate and our economy will suffer.
For the sake of fairness, for the sake of growth and for the sake of America’s entrepreneurial spirit, we need to reform the IRS now. An agency that punishes the vulnerable while letting the powerful escape scrutiny is not serving the people. A tax system that discourages job creation is failing the nation. If we want small businesses to thrive and the economy to grow, we must put the little guy back on an equal footing and make the IRS accountable to the people it is meant to serve.
