Tax Administration: Tax Requirements of Small Businesses (Letter Report,
08/24/1999, GAO/GGD-99-133).

Small businesses--a category that includes farmers and sole
proprietorships and partnerships, S corporations, and corporations with
assets of less than $5 million--are an important segment of taxpayers
that are subjective to substantial federal tax requirements. Not only do
they account for nearly half of all taxes that the Internal Revenue
Service (IRS) collects each year, but they also have extensive
interactions with the agency as they try to meet their tax obligations.
In response to congressional interest in alleviating the burden that the
federal tax system places on small businesses, GAO is issuing a series
of reports on the magnitude of the burden that complying with tax
obligations imposes on these business. This report determines (1) the
federal filing, reporting, and deposit requirements that apply to small
businesses and (2) the actual experience of small businesses in meeting
these requirements, including their involvement in IRS' enforcement
processes.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-99-133
     TITLE:  Tax Administration: Tax Requirements of Small Businesses
      DATE:  08/24/1999
   SUBJECT:  Small business
	     Tax return audits
	     Federal taxes
	     Tax administration
	     Tax law
	     Reporting requirements
IDENTIFIER:  IRS Audit Information Management System

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    United States General Accounting Office GAO               Report
    to the Chairman, Committee on Small Business, U.S. Senate August
    1999       TAX ADMINISTRATION Tax Requirements of Small Businesses
    GAO/GGD-99-133 United States General Accounting Office
    General Government Division Washington, D.C.  20548 B-281009
    August 24, 1999 The Honorable Christopher S. Bond Chairman,
    Committee on Small Business United States Senate Dear Mr.
    Chairman: Small businesses-a category that includes all farmers
    and sole proprietorships and partnerships, S corporations,1 and
    corporations with assets of less than $5 million-are an important
    segment of taxpayers that are subject to substantial federal tax
    requirements. Not only do they account for nearly half of all
    taxes the Internal Revenue Service (IRS) collects annually, but
    they also have extensive interactions with IRS as they attempt to
    comply with their tax obligations. Because of your interest in
    alleviating any unnecessary burden that the federal tax system
    places on small businesses, you asked us to assess the magnitude
    of the burden that complying with tax obligations imposes for
    these businesses. This report is the first of a series of reports
    to address your concerns. As agreed with your office, our
    objectives for this report were to determine (1) the federal
    filing, reporting, and deposit requirements that apply to small
    businesses and (2) the actual experience of small businesses in
    meeting these requirements, including their involvement in IRS'
    enforcement processes. Small businesses, like large businesses,
    are subject to multiple layers of Results in Brief
    filing, reporting, and deposit requirements. We identified more
    than 200 different IRS requirements that potentially apply to
    small businesses. Through such requirements, IRS administers a
    variety of tax policies- notably those associated with income,
    employment, and excise taxes. In considering the implications of
    the number of requirements, it is important to recognize that the
    requirements reflect the many decisions that have been made by
    Congress and the executive branch to accomplish their policy
    goals, including those that might benefit small businesses and
    other taxpayers. It is equally important to recognize that most
    businesses do not need to comply with all or even most of these
    requirements. The ones that 1Corporations with no more than 75
    shareholders can elect to be treated as S corporations for federal
    tax purposes if certain requirements are met. The main advantage
    of this election is avoidance of tax at both the corporate and
    shareholder level, as the income of S corporations is generally
    subject to tax only at the shareholder level. Page 1
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 apply to a
    particular small business would depend on how the business is
    organized, whether it has employees, and the nature of its
    business operations. Limitations in IRS' information systems
    prevented us from fully determining the extent to which small
    businesses filed the various forms and schedules or their
    involvement in key stages of IRS' enforcement processes. IRS has
    acknowledged that these limitations hinder its ability to
    effectively manage small business activities and will continue to
    be a serious impediment until the systems are improved. We were
    able to obtain and analyze limited data on small business filings
    of income tax forms and on some aspects of their involvement in
    IRS' enforcement processes. Our analysis of IRS' 1995 data on the
    most commonly filed income tax forms and schedules showed that
    small businesses, on average, filed one secondary form in addition
    to their primary income tax return, with little variation among
    types of businesses. Our analysis of small business audits showed
    that the audit rate for small businesses is higher than the rate
    for all taxpayers and that about two-thirds of the audits of small
    businesses result in recommendations for assessment of additional
    taxes and penalties. Businesses in the United States (including
    farmers) are generally Background    structured in one of four
    forms: sole proprietorship, partnership, S corporation, and
    corporation.2 Each form of business has distinctive legal
    characteristics and different tax consequences. Corporations are
    taxed as corporations, with dividends included in the owner's
    income; sole proprietors are taxed as individuals; and the income
    earned by S corporations and partnerships is passed through to
    their owners and taxed at the owners' rates. The Internal Revenue
    Code (IRC) distinguishes small businesses from larger businesses
    in a number of ways, and IRS has used different definitions of
    small business for different internal operating purposes. As part
    of its current reorganization effort, IRS has developed an
    agencywide definition of small business, which we used in our
    work. Based on that definition, small businesses include (1) all
    farmers and sole proprietorships and (2) partnerships, S
    corporations, and corporations that annually reported less than $5
    million in assets. 2Another alternative business form that has
    emerged is the limited liability company, which generally is
    classified as a partnership for tax purposes, but offers the
    corporate benefit of limited liability for owners. Page 2
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 A large
    majority of all businesses are small businesses. To illustrate,
    for tax year 1995, we used IRS data to identify approximately 23.4
    million businesses that filed returns. Of this population, 94
    percent of partnerships reported total assets of less than $5
    million, and 98 percent of S corporations reported total assets of
    less than $5 million. About 97 percent of U.S. corporations
    reported assets of less than $5 million in 1995. Sole
    proprietorships accounted for approximately 16.3 million of the
    nearly 23.4 million business filers in 1995.3 To identify the
    federal filing, reporting, and deposit requirements that Scope and
    apply to small businesses, we examined information such as IRS
    forms, Methodology    publications, manuals, and related IRC
    provisions. We also interviewed IRS officials who were cognizant
    of small business tax issues, including officials in IRS' Office
    of Public Liaison and Small Business Affairs, Compliance Research
    Division, Appeals Division, and the Small Business/Self-
    Employed/Supplemental Income Team.4 To help ensure completeness,
    we had knowledgeable IRS officials review our listing of IRS
    requirements. To develop a more comprehensive list of federal tax
    requirements that apply to small businesses, we contacted the
    Bureau of Alcohol, Tobacco, and Firearms (ATF) in the Department
    of the Treasury for information on requirements pertaining to the
    excise taxes that it administers. The ATF requirements apply
    generally to any business. To determine the actual experience of
    small businesses in meeting their filing, reporting, and deposit
    requirements, including their involvement in IRS' enforcement
    processes, we (1) interviewed IRS compliance officials
    specializing in examination, appeals, and collection issues to
    ascertain how small businesses are affected by the enforcement
    processes and (2) obtained some computerized information from IRS
    databases on the filing and enforcement experience of small
    businesses. This included data from IRS' Statistics of Income
    Division, Audit Information Management System (AIMS), and Accounts
    Receivable databases. Throughout this review, we drew on our
    previous work at IRS and on tax administration issues in general.
    3According to IRS, about half of these taxpayers received the vast
    majority of their income from wages, not business-related
    enterprises, and should be considered as "incidental" business
    filers. 4The Small Business/Self-Employed/Supplemental Income Team
    is one of several IRS teams developing plans and blueprints to,
    among other things, restructure IRS into four principal operating
    units to better serve taxpayers. Page 3
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 Our work
    did not address IRS activities related to small businesses that
    had not filed returns. Also, we experienced several limitations
    during the course of our work because much of the data we sought
    were not collected in IRS' information systems and databases or
    were not sufficiently reliable. To obtain and analyze the
    available data, we often had to rely upon sampling, matching, and
    ad hoc techniques. In addition, data were not available for a
    single year across all variables, so we had to use data from
    different years as needed.5 We did not verify the reliability of
    the IRS data we used except for some limited checking. Appendix I
    describes the data limitations we experienced in more detail. We
    requested comments on a draft of this report from IRS. Their
    comments are reprinted in appendix IV. Our work was performed in
    accordance with generally accepted government auditing standards
    between September 1998 and May 1999 at IRS headquarters in
    Washington, D.C. Small businesses, like large businesses, are
    subject to multiple layers of Small Businesses Face filing,
    reporting, and deposit requirements that reflect how the business
    is Multiple Layers of Tax organized, whether it has employees, and
    the nature of its business operations.6 By our count, there are
    more than 200 requirements-which Requirements
    we grouped into four layers-that may apply to small businesses as
    well as larger businesses and other taxpayers. The requirements
    are designed to implement a variety of tax policies. They provide
    a way not only to collect taxes from businesses, but also to use
    businesses to collect taxes owed by third parties (e.g.,
    withholding employees' personal income tax and Social Security and
    Medicare (FICA) taxes). It is highly unlikely that any business
    would need to complete all 200 requirements. This is because the
    forms, schedules, and other requirements that apply to a
    particular small business reflect how the business is organized,
    whether it has employees, and the nature of its business
    operations. Although a few of the requirements must be submitted
    more frequently than once a year, the vast majority are submitted
    annually. Appendix II provides a listing of all the requirements
    that we identified. They reflect the decisions of Congress and the
    executive branch in keeping with their policy goals and
    objectives. 5We obtained the most recent data available from IRS;
    some were for 1995 and some for 1997. 6For the purpose of this
    report, requirements are the filing of a tax form or schedule and
    making deposits. Schedules that were embedded in a primary return
    were not counted as a separate requirement. Page 4
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 The
    requirements with which a small business must comply depend upon
    Primary Income Tax                     how it is organized-sole
    proprietorship, partnership, S corporation, and Returns Represent
    One                  corporation. Each business type has its own
    primary income tax return, Layer of Requirements
    some of which include a set of schedules embedded in the form. For
    example, the primary corporate income tax return, Form 1120, U.S.
    Corporation Income Tax Return, contains eight embedded schedules.
    To support their primary income tax return, certain types of
    businesses and individuals with business income must also attach a
    mandatory schedule to their return. (See table 1.) For example,
    sole proprietorships must file Form 1040, U.S. Individual Income
    Tax Return, and Schedule C, Profit or Loss From Business.7 As
    pass-through entities, partnerships and S corporations each have
    two separate sets of returnsone for the entity and one for its
    owners. In addition to the primary income tax return filed by the
    entity, each owner must file a Form 1040 and a Schedule E,
    Supplemental Income and Loss.8 Table 1: Primary Income Tax Returns
    Business category                                        Primary
    income tax return                                  Mandatory
    schedulea and Mandatory Schedules                Sole
    proprietorship                                      Form 1040
    Schedule C Farmer
    Form 1040
    Schedule F Partnership
    Form 1065
    Schedule K-1 Partner
    Form 1040
    Schedule E S corporation
    Form 1120S
    Schedule K-1 Shareholder
    Form 1040
    Schedule E Corporation
    Form 1120                                                  None
    Legend Form 1040, U.S. Individual Income Tax Return Form 1065,
    U.S. Partnership Return of Income Form 1120, U.S. Corporation
    Income Tax Return Form 1120S, U.S. Income Tax Return for an S
    Corporation Schedule C, Profit or Loss From Business Schedule E,
    Supplemental Income and Loss Schedule F, Profit or Loss From
    Farming Schedule K-1, (form 1065) Partner's Share of Income
    Schedule K-1, (form 1120S) Shareholder's Share of Income
    aSchedules that are required to be filed with the primary return.
    Source: IRS. 7Related to income tax, estimated tax is another
    important requirement that applies to many small businesses. Many
    sole proprietorships, partners, and S corporation shareholders
    must pay estimated taxes quarterly for income and self-employment
    tax. In making these payments, they must estimate their income for
    the coming year and the amount of income, Social Security, and
    Medicare taxes that will be owed on this income. Corporations must
    also make installment payments of estimated tax on their income,
    while S corporations must pay estimated tax only on certain tax
    liabilities. 8Form 1040 and Schedule E are not generally
    considered to be business returns. Page 5
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 A small
    business' decision to hire employees adds a second layer of tax
    Employment Tax Adds            requirements. We identified 10
    different federal employment tax deposit Another Layer of Tax
    requirements that potentially apply to small businesses. The
    number of Requirements                   employment tax filings
    and deposits depends on the number of employees and the resulting
    employment tax liability owed at a particular time. (See table 2
    and table II.2 in app. II.) For each employee, a small business is
    generally responsible for collecting and remitting several federal
    taxes with varying frequency stipulationswithholding for
    employees' personal income tax and the employee's share of FICA,
    the employer's share of FICA, and federal unemployment tax (FUTA).
    Table 2: Key Employment Tax    Type of Requirements
    employment tax        Primary return
    Deposit requirements Personal income       Form 941, Employer's
    Quarterly         Quarterly if liability is less than and FICA tax
    Federal Tax Return                     $1,000 per quarter withheld
    and                                                 Monthly if
    $50,000 or less in the employer's share
    lookback perioda of FICA
    Semiweekly if more than $50,000 in the lookback period Next day if
    $100,000 or more accumulated on any day during a deposit period
    Form 943, Employer's Annual Tax Annually if liability is less than
    Return for Agricultural Employees $1,000 per year Monthly if
    $50,000 or less in the lookback periodb Semiweekly if more than
    $50,000 in the lookback period Next day if $100,000 or more
    accumulated on any day during a deposit period Deposits made by
    mail using Form 8109 or electronically using Electronic Federal
    Tax Payment System FUTA tax              Form 940, Employer's
    Annual            Deposit quarterly by mail using Unemployment Tax
    Return (if            Form 8109 or electronically using liability
    is greater than $100 in a    Electronic Federal Tax Payment tax
    year)                              System aThe Form 941 lookback
    period for 1999 covers four quarters, beginning July 1, 1997, and
    ending June 30, 1998. bThe Form 943 lookback period is the second
    calendar year preceding the current calendar year. Source: IRS. A
    small business employer must report quarterly the amount of
    personal income tax withheld and FICA taxes paid for employees on
    Form 941, Employer's Quarterly Federal Tax Return. The employer
    must deposit Page 6                                     GAO/GGD-
    99-133 Small Business Tax Requirements B-281009 employee income
    tax and FICA taxes withheld and the employer's share of FICA taxes
    by mail or electronically either quarterly, monthly, semiweekly,
    or the next business day, depending on the employers' tax
    liability. If total deposits of withheld income and FICA taxes
    were more than $50,000 in the second year preceding the current
    year, the employer must make electronic deposits using the
    Electronic Federal Tax Payment System (EFTPS).9 In addition, a
    small business employer must annually report and quarterly deposit
    FUTA taxes separately from FICA and withheld income tax. Lastly,
    an employer must send a federal Form W-2, Wage and Earnings
    Statement, to each of its employees and file federal Forms W-3,
    Transmittal of Wage and Tax Statements, and W-2 with the Social
    Security Administration. In sum, hiring employees-even just one
    employee-is a critical decision for small businesses in terms of
    their tax liability and the complexities of the tax administration
    processes that they face.10 The decision to offer employee
    pension, fringe, and welfare benefit plans Offering Employee
    Benefits adds another layer of requirements for a small business.
    Some benefit Adds a Third Layer of             plans may
    substantially increase the number of filing requirements that
    Requirements                      small businesses face, while
    others are simplified and entail few, if any, filing requirements.
    We counted over 10 filing and reporting requirements pertaining to
    benefit plans, including requirements like the Form 5500 series
    and related schedules. Certain pension plans are tailored to small
    businesses and self-employed individuals, offering them a tax-
    favored way to save for retirement. Simplified Employee Pensions
    (SEP), Savings Incentive Match Plans for Employees (SIMPLE), and
    Keogh plans offer small employers and self- employed individuals a
    deduction for contributions to the plan and deferral of tax on
    income of the plan. Generally, SEP and SIMPLE plans are less
    complex than Keogh plans, and while businesses must maintain
    records about the plans, they do not have any separate filing or
    reporting requirements with IRS. Keogh plans offer certain
    benefits not offered by SEP and SIMPLE, but they tend to be more
    complex and entail substantial filing and reporting requirements
    with IRS using Form 5500 and related schedules.11 In addition,
    most fringe and welfare benefit plans entail filing 9IRS has
    waived penalties for most smaller businesses required to use EFTPS
    that make timely deposits using paper deposit coupons. The penalty
    relief applies through December 31,1999, to all taxpayers
    currently required to use EFTPS if they did not make aggregate tax
    deposits of more than $200,000 during the year. In addition, new
    regulations increase the threshold amount from $50,000 (withheld
    income and FICA taxes) to $200,000 (aggregated of the federal tax
    deposits). 10Employment Taxes and Small Business (GAO/T-GGD-97-21,
    Nov. 8, 1996), p. 7. 11IRS, Department of Labor, and Pension
    Benefit Guaranty Corporation have consolidated their returns and
    report forms to minimize the filing burden for plan administrators
    and employers. Page 7
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 and
    reporting requirements with IRS using the Form 5500 series. (For a
    complete list, see table II.3 in app. II.) The remaining tax
    requirements that potentially apply to small businesses Other
    Business Operations    depend upon the nature of the business
    activities. A few of these Add a Fourth Layer of
    requirements are specific to a type of business, but most are
    generally Requirements                 applicable to all
    businesses. For example, there are requirements that pertain to
    the depreciation of assets, the sale of business property, and
    claims for a credit to increase research activities. These
    requirements, of which there are nearly 140, range across income
    taxes, excise taxes, and information reporting. (For a complete
    list, see tables II.4, II.5, and II.6 in app. II.) Some of these
    requirements are used to implement provisions in the Internal
    Revenue Code that can benefit small (and other) businesses. For
    example, businesses must complete Form 8861, Welfare-to-Work
    Credit, to receive a tax credit for hiring long-term family
    assistance recipients. Also, businesses must complete Form 4562 to
    claim deductions for depreciation and amortization of business
    assets or to make the election to immediately expense the cost of
    certain property. The election to expense property allows the
    taxpayer to take an immediate deduction instead of using the
    depreciation schedules to recover a portion of the costs annually
    over the property's useful life. (The total cost that may be
    expensed is $18,500 for 1998.) Among excise taxes alone, we
    identified about 70 requirements that potentially apply to small
    businesses. (For a complete list, see tables II.5 and II.6 in app.
    II.) Generally, though, most small businesses are not responsible
    for filing excise taxes. According to IRS, fewer than 800,000
    small businesses filed excise tax returns in 1997. IRS and ATF
    administer many of the federal excise taxes. The excise taxes
    administered by IRS consist of several broad categories, including
    environmental taxes, communications taxes, fuel taxes, retail sale
    of heavy trucks and trailers, luxury taxes on passenger cars, and
    manufacturers' taxes on a variety of different products. ATF
    administers excise taxes on the production, sale, or import of
    guns, tobacco, or alcohol products or the manufacture of equipment
    for their production. Page 8                              GAO/GGD-
    99-133 Small Business Tax Requirements B-281009 Limitations in
    IRS' information systems prevented us from fully Small Businesses'
    determining the extent to which small businesses actually filed
    various Experience in Filing          required forms and schedules
    and which businesses made deposits or the extent of small
    businesses' involvement in IRS' enforcement processes. We and
    Enforcement               were, however, able to obtain and
    analyze limited data on small Processes Could Not
    businesses' filing of income tax forms and on some aspects of
    small Be Fully Determined           businesses' involvement in
    IRS' enforcement processes. The data limitations currently hinder
    IRS' ability to effectively manage its activities and serve small
    businesses and, as IRS has acknowledged, will continue to be a
    serious impediment until the systems are improved. (For a more
    detailed discussion of IRS' data limitations, see app. I.) Filing
    Experience of Small Businesses Income Tax
    Although we weren't able to obtain data on most types of
    requirements, we were able to obtain information pertaining to
    small business income tax requirements. Our analysis of 1995 IRS
    data for approximately 44 forms and 46 related schedules that IRS
    believes are those most commonly filed showed that small
    businesses, on average, filed one secondary form in addition to
    their primary income tax return, with little variation among the
    different types of business. The most commonly filed secondary
    income tax form among the 44 was Form 4562, Depreciation and
    Amortization. Approximately 74 percent of farmers, 62 percent of
    partnerships, 69 percent of S corporations, and 73 percent of
    corporations filed the depreciation and amortization form in 1995.
    The returns for sole proprietorships were lower, with slightly
    less than 40 percent filing the depreciation and amortization form
    in 1995. The number of schedules small businesses submitted
    varied, depending on the type of business. This includes the
    mandatory schedules filed with the primary return by certain
    business types and individuals with business income as well as
    secondary schedules and other schedules embedded in the primary
    tax return. On average, sole proprietorships and corporations
    filed approximately three schedules, while farmers filed slightly
    less than three.12 Partnerships and S corporations filed more
    schedules than other types of businesses. Partnerships filed
    approximately 11 schedules, and S 12The results for sole
    proprietorships and farmers include schedules pertaining to
    nonbusiness income (e.g., wages). Page 9
    GAO/GGD-99-133 Small Business Tax Requirements B-281009
    corporations filed approximately 6 schedules, on average, in 1995.
    The filing results are higher for partnerships and S corporations
    because of their unique structure as pass-through entities.
    Partnerships and S corporations must file a Schedule K-1,
    Partner's or Shareholder's Share of Income, with IRS for each
    partner or shareholder. As a result, Schedule K-1 filings
    accounted for a significant proportion of the multiple schedules
    filed by partnerships and S corporations in that year. Employment
    Tax and Pensions       IRS did have information on federal
    employment taxes, but it could not be broken out by small
    businesses. Further, IRS did not have sufficient, reliable data on
    the number of small businesses that filed pension forms in 1995.
    We were able to obtain very limited disaggregated data on the
    number of pension forms filed in 1995. However, the results could
    not be projected to the larger population of small businesses. We
    worked with IRS' Employee Plans/Exempt Organizations Division to
    obtain a sample of the number of small businesses that filed Form
    5500, using an employer identification number match. From a sample
    of 65,701 small business employer identification numbers, we
    matched 11,585 that filed Form 5500. The data indicated that 1,090
    sole proprietorships, 824 partnerships, and 9,671 corporations
    filed forms from the Form 5500 series in 1995. IRS had limited
    data on the extent to which small businesses are involved
    Enforcement Experience of in both examination and collection
    activities. We obtained limited data on Small Businesses
    audit rates; duration; recommendations, such as refunds, no
    change, or changes recommended by IRS examiners; and appeals and
    petitions. When IRS has indications that a small business may have
    failed to meet one or more of the aforementioned requirements, the
    business can become involved in IRS' enforcement processes. These
    processes are basically the same for small businesses as for other
    taxpayers. They involve examining returns for potential errors or
    compliance problems, notifying taxpayers of suspected
    discrepancies, settling disputes over additional taxes
    recommended, and collecting taxes assessed.13 (App. III provides a
    simplified picture of IRS' audit and dispute resolution process.)
    13See Tax Administration: IRS' Return Selection Process (GAO/GGD-
    99-30, Feb. 22, 1999) and Tax Administration: IRS Measures Could
    Provide a More Balanced Picture of Audit Results and Costs
    (GAO/GGD-98-128, June 23, 1998). Page 10
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 Audits
    IRS' primary technique for assessing compliance with tax laws is
    to examine the accuracy of the tax reported on filed tax
    returns.14 In selecting returns to be audited, IRS attempts to
    focus on those it believes are most likely to have compliance
    problems. IRS data showed that about 2.3 percent of the income tax
    returns filed by small businesses in 1997 were audited, generally
    through audits conducted by IRS' district offices.15 By contrast,
    IRS audited 1.3 percent of all returns filed in 1997. The audit
    rate for sole proprietors (individuals filing Schedule C) was 3.2
    percent, compared to 1.2 percent for individuals not filing
    Schedule C.16 According to IRS officials, the audit rate for small
    business taxpayers is higher than the overall rate because small
    businesses tend to have more compliance problems than other
    taxpayers. A common kind of problem that small businesses can face
    is in the area of employment tax compliance. A small business can
    fall short of operating capital, and as a consequence, it may
    divert some or all of its estimated tax deposits or employment tax
    withholdings to make up the shortfall, hoping to pay IRS at a
    later date. According to IRS officials, the amount of these unpaid
    taxes, penalties, and interest can pyramid quickly. The danger is
    that a business that must rely on these funds for working capital
    is likely to have other liabilities and delinquencies that reflect
    financial problems so severe that it cannot recover.17 Table 3
    provides detailed information on the audit rates in 1997 for the
    four types of small businesses and farmers. 14IRS audits do not
    include all taxpayer contacts that can result in recommended
    assessments of additional tax. In particular, notices resulting
    from IRS' information matching math-error programs are generally
    not counted as audits, according to IRS officials. In 1997, IRS'
    information matching program generated about 2.8 million notices,
    resulting in assessments totaling about $1.5 billion. We could not
    identify any readily available data on how much was assessed to
    small businesses. 15IRS data on audits of Schedule C filers is
    limited to those who derive most of their income from their
    business activities rather than from wages. These audits, when
    conducted by IRS' service centers, generally involve aspects of
    the Form 1040 or self-employment tax return, rather than Schedule
    C. Also, the AIMS data do not take into account audits of Schedule
    E filers, particularly the individual owners of partnerships or S
    corporations. 16The data showed audit rates of 4.1 percent and 3.6
    percent for Schedule C filers in 1995 and 1996, respectively,
    compared to 1.5 percent in both years for individuals not filing
    Schedule C. 17See Unpaid Payroll Taxes: Billions in Delinquent
    Taxes and Penalty Assessments Are Owed (GAO/AIMD/GGD-99-211, Aug.
    2, 1999), which discusses employment tax compliance. Page 11
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 Table 3:
    Audit Rates Across Small    Type of business
    Size
    Audit rate Business Types                       Sole
    proprietorship                                      Gross receipts
    < $25,000
    3.2% Gross receipts $25,000 < 100,000
    2.6 Gross receipts $100,000 and more
    4.1 All sole proprietorships
    3.2 Farmer                                                   Gross
    receipts < $100,000
    1.3 Gross receipts $100,000 and more
    2.8 All farmers
    1.8 Partnershipa                                              All
    partnerships
    0.6 S corporationa                                            All
    S corporations
    1.0 Corporation
    Assets < $250,000
    1.2 Assets $ 250,000 < $1 million
    3.5 Assets $1 million < $5 million
    7.8 All corporations
    2.1 aAbout 94 percent of partnerships and 98 percent of S
    corporations were small businesses in 1995 (i.e., they had less
    than $5 million in assets, based on GAO's analysis of IRS'
    Statistics of Income data). Source: IRS Data Book (Publication
    55B), 1997. IRS has little data on the burden imposed by its
    audits of small businesses and other taxpayers.18 IRS' AIMS
    database does include information on the length of audits from an
    administrative perspective-that is, the number of days from when
    IRS' auditors first begin working on a case until the case is
    closed.19 This information, although not a complete indicator of
    the burden that IRS audits imposed on small businesses, does
    provide some insight on the time it takes to go through the audit
    process. During an audit, a taxpayer is likely to spend some time
    searching for documentation, responding to IRS' inquiries, and
    meeting with IRS examiners. However, over the course of the audit,
    there are also periods of time when the taxpayer is not actively
    involved, such as while IRS is evaluating records and researching
    issues, or when IRS examiners are temporarily reassigned to other
    cases or activities. Table 4 provides data on the average length
    of small business IRS audits that were closed in 1995. 18As of May
    1999, IRS was working with a consultant on a multiyear project to
    develop better estimates of tax compliance burden, including the
    burdens associated with audits. 19Audit cases are closed in
    various circumstances, such as when the case results in no
    changes, the taxpayer appeals the case, or IRS officials refer the
    case to the collection unit to collect the outstanding tax
    liability. Thus, when audit cases are referred to either the
    appeals or collection unit, IRS considers that the audit has
    concluded, and the case is closed in its Examination Division.
    However, as IRS opens a new case in either its appeals or
    collection unit, a taxpayer may perceive this as simply a
    continuation of the audit. Page 12
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 Table 4:
    Average Length of Small
    Durationa Business Audits
    Average length                    Less than 6
    6-12           More than Type of business
    (in days)                     months             months
    12 months Sole proprietorship
    273                       45.7%               32.5%
    21.7% Farm
    221                       69.1                17.1
    13.8 Partnershipb
    754d                      30.1                16.9
    52.9 S corporationc
    308d                      44.2                28.7
    27.1 Corporation
    335                       45.8                27.2
    27.0 Average for all businesses
    288                       46.2                31.0
    22.8 Note: Excludes audits recorded in IRS' database merely
    because a business was partially or totally owned by a large
    business subject to IRS' Coordinated Examination Program, in which
    IRS conducts lengthy audits of the very largest corporations.
    aTotal percent for some business categories does not equal 100 due
    to rounding. bIncludes all partnerships because IRS' AIMS database
    does not differentiate partnerships with less than $5 million in
    assets. cIncludes S corporations with less than $10 million in
    assets because IRS' AIMS database does not differentiate S
    corporations with less than $5 million in assets. dAccording to
    IRS, partnership and S corporation audits assigned to service
    centers remain open in the AIMS database even after they are
    appealed. Excluding service center audits reduces the average
    length of partnership audits to 472 days, with 41.8 percent
    lasting more than 12 months, and S corporation audits to 289 days,
    with 25.5 percent lasting more than 12 months. Source: GAO
    analysis of IRS' AIMS data. As shown in the table, on average, the
    audits lasted less than 1 year, and nearly half closed in less
    than 6 months. Still, some audits-especially those of
    partnerships-lasted much longer. For example, more than half of
    the audits of partnerships lasted more than 1 year, as did nearly
    30 percent of those for S corporations and corporations. Also,
    although not shown in the table, 16 percent of partnership audits
    and from 1 to 3 percent of the audits for other types of small
    businesses continued beyond 4 years.20 According to IRS'
    Examination Division officials, a variety of factors can lengthen
    the time it takes to complete a business audit. Examples cited
    included (1) difficulties in scheduling appointments with
    taxpayers, (2) the time required for a taxpayer to assemble needed
    information, and (3) the fact that some audits involve highly
    complex business tax issues requiring extensive research and
    investigation. With respect to audits of partnerships in
    particular, the officials said that the audits tend to take longer
    because IRS must secure and examine each partner's return in
    addition to the partnership return. An audit of a partnership's
    return remains open as long as any partner is in disagreement with
    any audit issue.21 Also, audits of partnerships often require
    special procedures and 20With certain exceptions, an assessment
    must be made within 3 years after a return has been filed. 21Under
    IRC section 6229, special rules apply to the period of limitations
    on the assessment of partnership items. Page 13
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 analyses,
    such as reviewing the linkages between the returns filed by the
    partnership and each of the partners and checking the application
    of complex tax laws affecting partnerships in some circumstances.
    Recommended Additional Taxes Small business audits often result in
    recommendations for the assessment and Penalties
    of additional taxes and penalties. For the small business audits
    closed in 1995, 67 percent resulted in a recommended change to the
    reported tax liability or refundable credits, while about 33
    percent resulted in no such changes. Some audits resulting in no
    change to the reported tax liability did result in changes to
    other return items deemed significant by IRS examiners. For
    example, net loss, which can be carried forward and claimed in
    future years, may have been overstated on the return and adjusted
    by IRS. Table 5 provides more detailed information on IRS
    examiners' recommendations on audits closed in 1995. In
    considering the information presented, it is important to note
    that the audit recommendations do not equate to final audit
    outcomes. For example, recommendations may be partially or fully
    overturned in IRS appeals or in court decisions. Table 5: Audit
    Recommendations for Small Business Audits
    Audits recommending                  Audits recommending change
    no change Type of                  Total Additional taxes
    No businessa              audits         and penalties
    Refund        Adjustmentb adjustment Sole proprietorship
    298,609                     63.8%          4.4%             15.7%
    16.1% Farmer                 13,381                     59.0
    6.7              10.3              23.9 Corporation
    35,011                     52.4           5.8              17.0
    24.8 All businesses 347,001                            62.4
    4.6              15.6              17.3 Note: For audits closed in
    1995. aPartnerships and S corporations were excluded because audit
    results generally pass through to the individual business owners.
    bIncludes audits that resulted in adjustments not affecting the
    taxpayer's liability for the current year, such as adjustments to
    reported net losses. Also includes delinquent returns secured by
    IRS auditors where reported tax liability was considered accurate.
    Source: GAO analysis of IRS' AIMS data. IRS' 1995 data show that
    small businesses appealed to IRS or filed court petitions in 8
    percent of the audits where it recommended additional tax and
    penalties. Table 6 provides more detailed information on audits
    that were appealed and petitioned by each small business category.
    According to IRS Appeals officials, the lower appeals rates for
    sole proprietorships and farms may reflect the fact that their
    returns generally involve less complex tax issues, which leads to
    fewer potential tax Page 14
    GAO/GGD-99-133 Small Business Tax Requirements B-281009
    disagreements. Similarly, the officials attribute the much higher
    appeals rate for partnerships to the complexity of the tax laws
    affecting partnerships and their returns. Table 6: Number of Small
    Business
    Audit appeals and petitions Audits Appealed or Petitioned to the
    As percent of audits Courts
    As percent of recommending additional Type of business
    Numbera                  total audits                        taxes
    and penalties Sole proprietorship
    11,739                              3.9
    6.2 Farm
    557                           4.2
    7.1 Partnershipb
    1,031                           14.6
    31.7 S Corporationc
    1249                             7.2
    15.7 Corporation
    3,615                           10.3
    19.9 All businesses
    18,216                              4.9
    8.0 Note: For audits closed in 1995. aLimited to appeals of audits
    that recommended additional taxes and penalties. bIncludes all
    partnerships because IRS' AIMS database does not differentiate
    partnerships with less than $5 million in assets. cIncludes S
    corporations with less than $10 million in assets because IRS'
    AIMS database does not differentiate S corporations with less than
    $5 million in assets. Source: GAO analysis of IRS' AIMS data.
    Collections                             IRS' collection process
    starts at the point IRS identifies a taxpayer as not having paid
    the amount of tax due as determined by the tax assessment.22
    First, IRS is to send a notice (or series of notices) to the
    taxpayers informing them of the amount owed.23 If the amount is
    not paid, IRS is authorized to employ enforcement powers to
    collect what is owed. IRS can refer the delinquency to an
    automated collection system call site, where an employee calls the
    taxpayer by telephone and asks for payment. The payment
    arrangements may include installment agreements or an offer-in-
    compromise from the taxpayers if the full amount owed cannot be
    paid. Information about large and chronic tax delinquencies can be
    referred directly to one of IRS' 33 district offices, where IRS
    revenue officers may contact the taxpayer in person. According to
    IRS officials, small business audits that involve employment taxes
    are often referred directly to district offices. In addition to
    liens and levies, IRS collection officials have 22As we have
    reported, IRS has had difficulty collecting assessments from many
    taxpayers, including small businesses. (See GAO/GGD-98-128, June
    23, 1998.) 23Collectively, these notices are to provide the
    taxpayer with statutory notification of the tax liability, IRS'
    intent to levy assets if necessary, and information on the
    taxpayer's rights. Page 15
    GAO/GGD-99-133 Small Business Tax Requirements B-281009 authority
    to seize and sell taxpayers' property, such as cars or real
    estate. Seizure is generally a last resort to get payment of the
    amount owed, and the IRS Restructuring and Reform Act now requires
    a district director's approval. IRS could not provide information
    on the number of small businesses undergoing enforced collection
    actions (i.e., liens, levies, or seizures). However, recent IRS
    information shows that enforced collections, in general, have
    declined dramatically since 1997. For example, in fiscal year
    1997, IRS made about 10,000 seizures compared to about 2,300 in
    fiscal year 1998, and fewer than 200 in fiscal year 1999. We
    requested comments on a draft of this report from the Commissioner
    Agency Comments    of Internal Revenue. On July 23, 1999, we
    received IRS' written comments, which discuss IRS' plans and
    actions to assist small businesses with their filing and reporting
    burdens. The comments are reprinted in appendix IV. We also met
    with IRS officials, including the Deputy National Director of the
    Public Liaison and Small Business Affairs Office and the Assistant
    Commissioner for Forms and Submission Processing, to discuss their
    technical comments, which we incorporated where appropriate. We
    are sending copies of this report to Senator John Kerry, Ranking
    Minority Member of your Committee; Senator William V. Roth, Jr.,
    Chairman, and Senator Daniel P. Moynihan, Ranking Minority Member,
    Senate Committee on Finance, and Representative Bill Archer,
    Chairman, and Representative Charles B. Rangel, Ranking Minority
    Member, House Committee on Ways and Means. Copies will also be
    sent to the Honorable Lawrence H. Summers, Secretary of the
    Treasury; the Honorable Charles O. Rossotti, Commissioner of
    Internal Revenue; and the Honorable Jacob Lew, Director, Office of
    Management and Budget. Copies will be made available to others
    upon request. Page 16                              GAO/GGD-99-133
    Small Business Tax Requirements B-281009 If you or your staff have
    any questions concerning this report, please contact me or Charlie
    W. Daniel on (202) 512-9110. Key contributors to this report were
    Robert Floren and Daniel Lynch. Sincerely yours, Margaret T.
    Wrightson Associate Director, Tax Policy and Administration Issues
    Page 17                          GAO/GGD-99-133 Small Business Tax
    Requirements Contents 1 Letter 20 Appendix I IRS' Information
    Systems Limit Availability of Data on Small Businesses 23 Appendix
    II Tax Requirements That Potentially Apply to Small Businesses 35
    Appendix III Simplified Audit and Dispute Resolution Processes 38
    Appendix IV Comments From the Internal Revenue Service Table 1:
    Primary Income Tax Returns and Mandatory
    5 Tables                       Schedules Table 2: Key Employment
    Tax Requirements                                    6 Table 3:
    Audit Rates Across Small Business Types
    12 Table 4: Average Length of Small Business Audits
    13 Table 5: Audit Recommendations for Small Business
    14 Audits Table 6: Number of Small Business Audits Appealed or
    15 Petitioned to the Courts Table II.1: Layer OnePrimary Income
    Tax Returns and                       23 Related Schedules Table
    II.2: Layer TwoEmployment Tax Requirements
    25 Page 18                         GAO/GGD-99-133 Small Business
    Tax Requirements Contents Table II.3: Layer ThreeEmployee Benefit
    Plan                                  26 Requirements Table II.4:
    Layer FourRequirements That Depend on
    27 Business Operations Table II.5: Layer FourExcise Tax
    Requirements                                 32 Administered by
    IRS Table II.6: Layer FourExcise Taxes Administered by
    33 ATF Figure III.1: Simplified Audit and Dispute Resolution
    36 Figures      Processes
    37 Abbreviations AIMS           Audit Information Management
    System ATF            Bureau of Alcohol, Tobacco, and Firearms
    EFTPS          Electronic Federal Tax Payment System FICA
    Federal Insurance Compensation Act FUTA           Federal
    Unemployment Tax Act IRC            Internal Revenue Code IRS
    Internal Revenue Service SEP            simplified employee
    pensions SIMPLE         savings incentive match plans for
    employees Page 19                             GAO/GGD-99-133 Small
    Business Tax Requirements Appendix I IRS' Information Systems
    Limit Availability of Data on Small Businesses In general, the
    Internal Revenue Service's (IRS) numerous information systems do
    not collect or store information by taxpayer groups, such as small
    businesses. Rather, IRS' current data systems reflect the agency's
    stovepipe structure and transaction-based business approach. Even
    if IRS' information systems maintained data by taxpayer groups,
    obtaining complete account information for a taxpayer would not be
    easy because IRS' systems are not linked together. Historically,
    IRS has operated through functions, such as Examination or
    Collection, and information about taxpayers tended to be developed
    to serve each function's specific needs and its specific
    interactions with taxpayers rather than IRS' overall needs or
    taxpayers' needs. As a result, IRS' various and discrete databases
    provide information pertaining to certain transactions, such as
    seizures or the filing of income tax returns. The structure of
    IRS' information systems does not easily allow for a complete
    assessment of a small business taxpayer's interactions-from filing
    to postfiling-with IRS. IRS maintains information about taxpayers'
    filing and compliance histories in masterfile accounts, currently
    housed in Martinsburg, WV. The majority of the information about
    taxpayers' filing and compliance histories is stored in two
    masterfiles-the individual masterfile and the business masterfile.
    Neither of these files is coded to distinguish small businesses
    from other taxpayers. To further complicate matters, data on
    filings and payments by small businesses may be divided between
    the individual and business masterfile. Data from Schedule C (sole
    proprietorship), Schedule E (partnership and S corporation
    shareholder), and Schedule F (farmer) are posted to the individual
    masterfile. Data from Schedule 1120 for corporations, including S
    corporations, are posted to the business masterfile. In addition,
    all employment and excise tax data are posted to the business
    masterfile. As a result, certain small businesses may have data on
    both masterfiles. A similar situation exists with postfiling data,
    such as that pertaining to examination and collection activities.
    The data are scattered across numerous information systems and are
    not coded to distinguish small businesses from other taxpayers.
    The business masterfile accounts are especially complicated,
    having multiple reporting requirements and being more difficult
    for IRS to maintain without error or to use to access data. Also,
    the information on the masterfiles is not complete because other
    databases may have other related information. For example, income
    received about the business from a bank or other payer that has
    been reported to IRS on an information return is not included in
    the masterfiles. Page 20                           GAO/GGD-99-133
    Small Business Tax Requirements Appendix I IRS' Information
    Systems Limit Availability of Data on Small Businesses Further,
    IRS updates the masterfiles weekly, after the transactions have
    taken place. Most of IRS' compliance systems (e.g., Collection)
    operate off uploads and downloads of selected taxpayer account
    information on the masterfiles. These systems are used on-line by
    IRS employees to assist taxpayers or assess their compliance. But
    the account information on the systems is limited to the intended
    purpose, and updates are not reflected until the masterfiles are
    updated on weekends. The limitations in IRS' information systems
    prevented us from fully determining the extent to which small
    businesses actually filed various required forms and schedules and
    made deposits. The limitations also prevented us from fully
    determining the extent of small businesses' involvement in IRS'
    enforcement processes. Many of the IRS databases do not allow for
    a detailed analysis of the information they contain. We were
    unable to separate out the four types of small businesses in some
    of the databases. For example, the Form 941 that employers are to
    use to file their employment taxes does not have information on
    business assets or gross receipts that would have allowed us to
    categorize employers by size. Without this information, our
    alternative was to use information from the business masterfile.
    Accessing the appropriate tax module in that file might have made
    it possible to capture information on assets. However, extracting
    masterfile data is a time- and resource-intensive undertaking that
    is prone to errors and data reliability problems. It involves
    requesting IRS' Information Services to provide an extract from
    various masterfiles, working with the files to validate them, and
    then merging the data into one that would be suitable for
    analysis. IRS receives many internal and external requests for
    data, and each request must await its turn in the queue. IRS'
    resources are limited, and the request could have taken many
    months for the agency to complete. Thus, we decided not to ask IRS
    to make the extractions for us. Some of the information we sought
    was not readily available from IRS' compliance databases. For
    example, IRS' Audit Information Management System (AIMS) database
    does not identify some small business taxpayers or adequately
    distinguish small businesses from other businesses. Because AIMS
    does not include the asset size of partnerships or S corporations,
    it cannot distinguish between small and other partnerships or S
    corporations. AIMS does, however, include asset data for sole
    proprietorships and corporations. Page 21
    GAO/GGD-99-133 Small Business Tax Requirements Appendix I IRS'
    Information Systems Limit Availability of Data on Small Businesses
    IRS' audits do not include all taxpayer contacts that can result
    in recommended assessments of additional tax. In particular,
    notices resulting from IRS' information matching math-error
    programs are generally not counted as audits, according to IRS
    officials. In 1997, IRS' information matching program generated
    about 2.8 million notices, resulting in assessments totaling about
    $1.5 billion. We could not identify any readily available data on
    the proportion of these assessments directed at small businesses.
    IRS is taking interim steps to address some of its data problems.
    IRS expects to develop a way of linking a customer identifier to
    the case information in 35 of its most important information
    systems. When this "workaround" is complete, IRS managers and
    frontline workers should know whether the return or information
    report data they might be using are for a small sole proprietor,
    partnership, S corporation, or corporation. However, the interim
    solution will not provide real-time information about the full
    range of transactions currently ongoing for a particular taxpayer.
    Neither will the interim solution link IRS' systems to provide
    comprehensive information about taxpayers' interactions with the
    agency. IRS has acknowledged that its systems limitations hinder
    its ability to effectively manage its activities and serve small
    businesses and plans to continue making information systems
    improvements as part of its ongoing modernization and
    restructuring efforts. Page 22
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Table
    II.1: Layer OnePrimary Income Tax Returns and Related Schedules
    Frequency Type of
    (annually unless business       Tax forma
    otherwise noted) Explanation Sole           Form 1040, U.S.
    Individual Income Tax                          If reporting income
    from a sole proprietorship (or other proprietorship Return
    individual income) Schedule C, Profit or Loss from a
    If incurred profit or loss as owner of a sole proprietorship
    Business (Sole Proprietor) Schedule C-EZ, Net Profit from Business
    If expenses are $2,500 or less, may use Schedule C-EZ as
    alternative to Schedule C Form 1040 E, Estimated Tax for
    Quarterly           If income and self-employment taxes expected
    to be Individuals
    $1,000 or more and withholding and credits are expected to be less
    than the smaller of 90 percent of the tax on the current year
    return or 100 percent of the tax shown on return for the previous
    year. Form 2210, Underpayment of Estimated
    If estimated tax filer wants to perform their own penalty Tax by
    Individuals, Estates, and Trusts
    calculations instead of allowing IRS to make the calculations for
    them Farmer         Form 1040, U.S. Individual Income Tax
    If reporting income from a farm as an individual taxpayer Return
    Form 1065, U.S. Partnership Return of                          If
    reporting income from a farm and organized as a Income
    partnership Schedule F, Profit or Loss from Farming
    If incurred farm income or expenses Schedule J, Farm Income
    Averaging                              If electing to figure tax
    liability by averaging income over past 3 years Form 990C,
    Farmers' Cooperative                                If a farmers'
    associations operated on a cooperative Association Income Tax
    Return                                  basis Form 1040 ES,
    Estimated Tax for            Quarterly           See explanation
    above. Qualified farmers pay annually; Individuals
    nonqualified farmers pay quarterly. Form 2210F, Underpayment of
    Estimated                          If farmers or fishermen want to
    perform their own penalty Tax by Farmers and Fisherman
    calculations for estimated tax instead of allowing IRS to make the
    calculations for them Partnership    Form 1065, U.S. Partnership
    Return                             If organized as a partnership,
    unless received no income (information return)
    and incurred no expenses treated as deductions or credits for
    federal income tax purposes Schedule K-1, (form 1065) Partner's
    If organized as a partnership with income or deductions; Share of
    Income, Credits, Deductions                           copy filed
    with IRS for each partner etc. Partner      Form 1040, U.S.
    Individual Income Tax                          See explanation
    above Return Schedule E, Supplemental Income and
    If a partner in a partnership (even if no income received) Loss
    (part II)                                                 to
    report share of partnership income or loss Form 1040 ES, Estimated
    Tax for            Quarterly           See explanation above
    Individuals Form 2210, Underpayment of Estimated
    See explanation above Tax by Individuals, Estates, and Trusts S
    corporation Form 1120S, U.S. Income Tax Return for
    If elected to be an S corporation to report income, gains, an S
    Corporation                                               losses,
    etc.                                     (continued) Page 23
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Frequency
    Type of
    (annually unless business       Tax forma
    otherwise noted) Explanation S corporation Schedule K-1 (form
    1120S),                                       If an S corporation,
    copy filed with IRS for each Shareholder's Share of Income,
    Credits,                         shareholder Deductions Estimated
    Tax, Form 8109, Tax Deposit       Quarterly           If tax
    expected to be $500 or more for certain specified Coupon or EFTPS
    taxes Shareholder Form 1040, U.S. Individual Income Tax
    See explanation above Return Schedule E, Supplemental Income and
    If a shareholder in an S corporation (even if no income Loss (part
    II)                                                  received) to
    report share of S corporation income or losses Form 1040 ES,
    Estimated Tax for             Quarterly           See explanation
    above Individuals Form 2210, Underpayment of Estimated
    See explanation above Tax by Individuals, Estates, and Trusts
    Corporation    Form 1120, U.S. Corporation Income Tax
    If a domestic corporation, regardless of taxable income, Return
    unless meeting requirements for specialized forms or exempt under
    section 501 Form 1120-A, U.S. Corporation Short
    If gross receipts, total income, and total assets each Form Income
    Tax Return                                          under $500,000
    and certain other requirements met Estimated Tax, Form 8109, Tax
    Deposit       Quarterly           If income tax expected to be
    $500 or more Coupon or EFTPS Form 2220, Underpayment of Estimated
    If corporation is using annualized income installment Tax by
    Corporations                                             method or
    adjusted seasonal installment method or a large corporation
    figuring first required installment based on prior year's tax
    Other          Form 1120-H, Income Tax Return for
    If a qualified homeowners association and form 1120-H corporation
    Homeowners Associations (attach to
    yields lower tax than form 1120 returns        1120) Form 1120-IC-
    DISC, Interest Charge                              If at least 95
    percent of gross receipts during the tax year Domestic
    International Sales Corporation                        are
    qualified export receipts and certain other Return (also must file
    three Schedules                         requirements met K, P, and
    Q, form 1120-IC-DISC) Form 1120-L, U.S. Life Insurance
    If a domestic life insurance company (or a foreign Company Income
    Tax Return                                       corporation that
    would qualify as a life insurance company if it were a U.S.
    corporation) Form 1120-PC, U.S. Property and
    If a domestic nonlife insurance company (or a foreign Casualty
    Insurance Company Income                               corporation
    that would qualify as a nonlife insurance Tax Return
    company if it were a U.S. corporation) Form 1120-REIT, U.S. Income
    Tax                                 If a corporation, trust or
    association meeting specified Return for Real Estate Investment
    Trusts                        conditions and electing to be
    treated as a Real Estate Investment Trust Form 1120-RIC, U.S.
    Income Tax Return                           If a domestic
    corporation that elects to be treated as an for Regulated
    Investment Companies                              Regulated
    Investment Company Form 1120-SF, U.S. Income Tax Return
    If structured as a section 468B designated and qualified for
    Settlement Funds
    settlement fund aWe did not count schedules that are embedded in a
    primary return as separate requirements. Source: GAO compilation
    of IRS information. Page 24
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Table
    II.2: Layer TwoEmployment Tax Requirements Type of tax    Tax form
    Frequency                   Explanation Withheld       Form 941,
    Employer's Quarterly Federal Tax Quarterly
    If business has employees they are to report income         Return
    withheld taxes and FICA       Schedule B (form 941), Employer's
    Record          As required: quarterly, If business has employees
    of Federal Tax Liability (attach to 941)          monthly,
    semiweekly Form 941C, Supporting Statement to Correct As needed to
    correct If business has employees Information
    withholding errors from prior quarters Form 941M, Employer's
    Monthly Federal            Monthly                     If business
    has employees Tax Return Deposit (form 941 payments), by mail
    using        Quarterly if liability < If business has employees
    and withholds taxes. Form 8109, Federal Tax Deposit Coupon, or
    $1,000 per quarter;                 Electronic deposit if annual
    liability greater than by EFTPS
    monthly if < $50,000 $50,000 in lookback period;a semiweekly if >
    $50,000 in lookback period; or next day if > $100,000 undeposited
    Form 943, Employer's Annual Tax Return for Annually
    If withheld income and employment taxes on Agricultural Employees
    wages paid to agricultural employees Deposit (form 943 payments),
    by mail              Annually if liability <     Same as above
    using Form 8109, Federal Tax Deposit              $1000 for the
    year; Coupon, or by EFTPS                               monthly if
    < $50,000 in lookback period;b semiweekly if > $50,000 in lookback
    period; next day if > $100,000 undeposited Form 945, Annual Return
    of Withheld               Annually                    If income
    tax withheld from nonpayroll payments Federal Income Tax FUTA
    Form 940, Employer's Annual Federal               Annually
    If business has employees and liability is greater Unemployment
    Tax Return
    than $100 in tax year Form 940EZ
    Annually                    If business has employees and if
    certain conditions are met for state unemployment taxes Deposit
    (Form 940 payments) Form 8109,            Quarterly
    If liability greater than $100 in tax year Federal Tax Deposit
    Coupon or EFTPS Information    Form W-2, Wages and Compensation
    Paid             Annually                    If business has
    employees (must file on magnetic returns        to Employees
    media if 250 or more Form W-2s) Form W3, transmittal of W2s
    Annually                    If business has employees (shows
    totals from Form W2s, same filing as W2) Self-          Schedule
    SE, Self-Employment Tax                  Annually
    If received net earnings of $400 or more from self- employment
    employment aThe Form 941 lookback period for 1999 covers four
    quarters, beginning July 1, 1997 and ending June 30, 1998. bThe
    Form 943 lookback period is the second calendar year preceding the
    current calendar year. Source: GAO compilation of IRS information.
    Page 25                                        GAO/GGD-99-133
    Small Business Tax Requirements Appendix II Tax Requirements That
    Potentially Apply to Small Businesses Table II.3: Layer
    ThreeEmployee Benefit Plan Requirements Tax form
    Frequency Explanation Form 5500, Annual Return/Report of Employee
    Annually     If plan has 100 or more participants Benefit Plan
    Form 5500-EZ, Annual Return/Report of One-
    Annually     If only one participant and certain other conditions
    met Participant Retirement Plan Form 5500-C/R, Annual
    Return/Report of Employee              Annually     If fewer than
    100 participants Benefit Plan Schedule A (form 5500), Insurance
    Information                Annually     If any plan benefits
    provided by insurance company Schedule B (form 5500), Actuarial
    Information                Annually     If plan set up as "defined
    benefit" rather than "defined contribution" and subject to minimum
    funding standard Schedule C (form 5500), Service Provider and
    Annually     If compensation paid to any trustee or others
    providing services to Trustee Information
    the plan exceeds a certain threshold, generally $5,000 per year
    Schedule E (form 5500), Employee Stock Ownership
    Annually     If an employer with a pension benefit plan that
    contains ESOP Plan (ESOP) Annual Information
    benefits Schedule F (form 5500), Fringe Benefit Plan Annual
    Annually     If an employer with a cafeteria plan, educational
    assistance Information Return
    program, or adoption assistance program Schedule G (form 5500),
    Financial Schedules                  Annually     If filing form
    5500 Schedule P (form 5500), Annual Return of Fiduciary
    Annually     If a trustee of a trust created as part of an
    employee benefit plan of Employee Benefit Trust
    or a custodian of a custodial account Schedule SSA (form 5500),
    Annual Registration                Annually     If filing form
    5500, to report participants with vested benefits who Statement
    Identifying Separated Participants With
    were separated from the company during the year Deferred Vested
    Benefits Source: GAO compilation of IRS information. Page 26
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Table
    II.4: Layer FourRequirements That Depend on Business Operations
    Frequency Form
    (annually unless applicability    Tax form
    otherwise noted) Explanation Potentially any Schedule D, Capital
    Gains and Losses                              If business sold or
    exchanged capital assets business         Form 1116, Foreign Tax
    Credit                                    If filing as an
    individual, estate, or trust and paid certain foreign taxes to a
    foreign country or U.S. possession Form 3468, Investment Credit
    If claiming investment in building rehabilitation, alternative
    energy, or reforestation Form 3800, General Business Credit
    If more than one type business credit claimed Form 4255, Recapture
    of Investment Credit                        If required to
    refigure investment credit (e.g., when investment credit property
    sold) Form 4562, Depreciation and Amortization
    If depreciating, amortizing, or expensing certain business
    property Form 4684, Casualties and Thefts
    If deducting losses due to fire, storm, theft, or other casualty
    Form 4797, Sales of Business Property
    If sold or exchanged business property Form 4952, Investment
    Interest Expense                           If filing as an
    individual, estate, or trust and claiming Deduction
    deduction for investment interest expense Form 5884, Work
    Opportunity Credit                               If claiming the
    work opportunity credit for wages paid to targeted groups of
    employees Form 6198, At-Risk Limitations
    If incurred loss from specified "at risk activities" (e.g.,
    farming, exploring for oil, others) Form 6251, AMT Individuals
    If tax on alternative minimum tax income is greater than tax
    reported on form 1040 Form 6252, Installment Sale Income
    If reporting income from casual sales (other than inventory) where
    payments received in a tax year after the year of sale Form 6478,
    Alcohol Used as Fuel Credit                           If claiming
    the credit for alcohol used as fuel Form 6765, Increasing Research
    Credit                            If claiming the credit for
    increasing research activities Form 6781, Gains and Losses from
    Section                         If claiming gains or losses from
    (1) section 1256 1256 Contracts and Straddles
    contracts under the marked-to-market rules (such as regulated
    futures contracts) or (2) straddles (offsetting positions that
    decrease the risk of loss) Form 8275, Disclosure Statement
    If disclosing items that are otherwise not adequately disclosed
    for the purpose of avoiding penalties Form 8275-R, Regulation
    Disclosure                               If disclosing positions
    taken on a tax return that are Statement
    contrary to Treasury regulations Form 8404, Interest Charge on
    DISC-                              If a shareholder in a Interest
    Charge Domestic Related Deferred Tax Liability
    International Sales Corporation and receiving deferred DISC income
    that increases taxable income Form 8582, Passive Activity Loss
    If reporting a net loss from "passive activities" (e.g.,
    Limitations
    most real estate investments) Form 8586, Low Income Housing Credit
    If an owner of certain low-income housing projects and claiming
    credit Form 8594, Asset Acquisition Statement
    If bought or sold a trade or business and goodwill or going-
    concern value attaches or could attach to assets (continued) Page
    27                                 GAO/GGD-99-133 Small Business
    Tax Requirements Appendix II Tax Requirements That Potentially
    Apply to Small Businesses Frequency Form
    (annually unless applicability    Tax form
    otherwise noted) Explanation Potentially any Form 8609, Low-Income
    Housing Credit                                 If obtaining a
    housing credit allocation in order to claim business
    Allocation Certification
    low-income housing credit Form 8697, Interest Computation under
    the                           If required to figure interest on
    certain long-term Look-Back Method for Completed Long-
    contracts under the "lookback" method of section term Contracts
    460(b)(2) Form 8801, Credit for Prior Year Minimum
    If filing as individual, estate, or trust and claiming the Tax
    minimum tax credit for alternative minimum tax incurred in a prior
    year Form 8816, Special Loss Discount Account
    If an insurance company and electing an additional and Special
    Estimated Tax Payments for                              deduction
    under section 847 Insurance Companies Form 8817, Allocation of
    Patronage and                              If organized as a
    cooperative and reporting income or Nonpatronage Income and
    Deductions                                  deductions from
    patronage or nonpatronage sources Form 8820, Orphan Drug Credit
    If claiming an orphan drug credit Form 8824, Like-kind Exchanges
    If exchanged business or investment property for property that is
    of a like kind Form 8826, Disabled Access Credit
    If an eligible small business (with not more than $1 million in
    gross receipts or 30 employees) and claiming the Disabled Access
    Credit Form 8830, Enhanced Oil Recovery Credit
    If claiming the enhanced oil recovery credit Form 8834, Qualified
    Electric Vehicle Credit                        If claiming the
    credit for a qualified electric vehicle placed in service during
    the tax year Form 8835, Renewable Electricity
    If claiming the renewable electricity production credit Production
    Credit Form 8844, Empowerment Zone
    If claiming the empowerment zone employment credit Employment
    Credit                                                   for
    qualified wages and other expenses paid or incurred on behalf of
    any qualified zone employee Form 8845, Indian Employment Credit
    If employed American Indian(s) meeting certain criteria Form 8846,
    Credit for Employer Social                               If
    claiming credit for Social Security and Medicare Security and
    Medicare Taxes Paid on                                 taxes
    incurred on employees' tip income Certain Employee Tips Form 8847,
    Credit for Contributions to                              If
    claiming the credit for contributions to a selected Selected
    Community Development Corps
    Community Development Corporation Form 8850, Pre-Screening Notice
    and             No later than 21 If an employer and claiming the
    Work Opportunity Certification Request for the Work
    days after job      Credit or the Welfare-to-Work Credit
    Opportunity and Welfare-to-Work Credits         applicant begins
    working Form 8861, Welfare-to-Work Credit
    If an employer and claiming the welfare-to-work credit for wages
    paid or incurred to long-term family assistance recipients Form
    1096, Annual Summary and                                       If
    certain information returns filed, including paper Transmittal of
    Information Returns                                  forms 1099
    Form 1098, Mortgage Interest Statement
    If business receives $600 or more in mortgage interest from any
    person(s) Form 1099-A, Acquisition or Abandonment
    If acquired property as security for loan of Secured Property Form
    1099-B, Proceeds from Broker or                                If
    business operates as a broker or barter exchange, it Barter
    Exchange Transactions                                        must
    report proceeds from transactions          (continued) Page 28
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Frequency
    Form
    (annually unless applicability      Tax form
    otherwise noted) Explanation Potentially any
    If certain financial institutions cancel debt of $600 or business
    Form 1099-C, Cancellation of Debt
    more Form 1099-DIV, Dividends and
    If paid dividends or made certain other distributions of
    Distributions
    stock Form 1099-INT, Interest Income
    If paid interest income exceeding specified amounts; also shows
    backup withholding Form 1099-LTC, Long-Term Care and
    If an insurance company or other payer of long-term Accelerated
    Death Benefits                                         care
    benefits Form 1099-MISC, Miscellaneous Income
    If made certain payments in the course of a trade or business,
    e.g., payments to independent contractors Form 1099-MSA,
    Distributions From                                  If made
    distributions from employees' medical savings Medical Savings
    Accounts                                           accounts Form
    1099-OID, Original Issue Discount                             If
    issued debt instrument with $10 or more of original issue discount
    Form 1099-PATR, Taxable Distributions
    If a consumer cooperative and issued patronage Received From
    Cooperatives                                         dividends of
    $10 or more Form 1099-R, Distributions From Pensions,
    If business distributed $10 or more from retirement or Annuities,
    Profit Sharing and Retirement                           profit-
    sharing plan Plans, etc. Form 1099-S, Proceeds From Real Estate
    If received proceeds from the sale or exchange of real
    Transactions
    estate Form 4789, Currency Transaction Report         No later
    than 15 If customer of financial institution enters transaction of
    days after          $10,000 or more in currency transaction Form
    5498, IRA Contribution Information                            If
    maintained IRAs for any person(s) Form 5498, MSA Information
    If maintained a medical savings account for any person(s) Form
    8027, Employer's Annual Information                           If a
    food and beverage establishment with more than Return of Tip
    Income and Allocated Tips                            10 employees
    who work a total of more than 8 business hours on a typical
    business day (and tipping is a customary practice) Form 8281,
    Information Return for Publicly     Within 30 days of If issued
    publicly offered debt instrument having Offered Original Issue
    Discount Instruments issuance of OID original issue discount
    instrument Form 8282, Donee Information Return            125 days
    after      If a donee organization that sells or otherwise
    disposes disposition of      of certain charitable deduction
    property within 2 years charitable          after the date of
    receipt property Form 8271, Investor Reporting of Tax
    If claiming a tax benefit or reporting income from a Shelter
    Registration Number
    "registration-required" tax shelter Form 8300, Report of Cash
    Payments Over No later than 15 If business received cash payment
    of $10,000 or more $10,000 Received in a Trade or Business
    days after          in one transaction transaction Form 8329,
    Lender's Information Return for                         If made a
    loan that is a certified indebtedness amount Mortgage Credit
    Certificates                                       on any mortgage
    credit certificate Form 8362, Currency Transaction Report
    Daily               If a casino in the U.S. with annual gross
    gaming by Casinos
    revenues in excess of $1 million, to report currency transactions
    of $10,000 or more                (continued) Page 29
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Frequency
    Form
    (annually unless applicability    Tax form
    otherwise noted) Explanation Potentially any Form 8703, Annual
    Certification of a business         Residential Rental Project
    If operating a qualified residential rental project Form 8852,
    Currency Transaction Report         15th day after the If a Nevada
    casino with annual gross gaming revenue by CasinosNevada
    transaction         of more than $10 million to report currency
    transactions of $10,000 or more Form 926, Return by a U.S.
    Transferor of       Day of transfer     If transferred property to
    a foreign corporation, estate, Property to a Foreign Corporation
    trust, or partnership Farmers          Form 4835, Farm Rental
    Income and                                  If a landowning farmer
    reporting farm rental income Expenses
    based on crops or livestock produced by tenant Partnerships
    Schedule D (Form 1065), Capital Gains
    If sale of capital assets allocated to partnership, not and S
    and Losses
    partners corporations     Schedule D (Form 1120S), Capital Gains
    If sold or exchanged capital assets and to report gains and Losses
    and Built-in Gain                                       on
    distributions to shareholders of appreciated capital assets; also
    used to report any built in gains tax Form 8308, Report of a Sale
    or Exchange                            If sold or exchanged a
    partner's interest in a section of Certain Partnership Interests
    751a exchange Form 8621, Return by a Shareholder of a
    If an owner or shareholder of a passive foreign Passive Foreign
    Investment Company or                              investment
    company Qualified Electing Fund Form 8752, Required Payment or
    Refund                              If elected to have an
    alternate tax year Under Section 7519 Form 8825, Rental Real
    Estate Income and                           If business had income
    or deductible expenses from Expenses of a Partnership or an S
    rental real estate activities Corporation Partners and     Form
    4952, Investment Interest Expense                             If a
    partner or other individual, estate or trust claiming shareholders
    Deduction
    a deduction for investment interest expense, unless certain
    conditions apply Form 8082, Notice of Inconsistent
    If items treated differently on schedule E and form Treatment or
    Administrative Adjustment                             1065 or form
    1120S Request Corporations     Schedule D (Form 1120), Capital
    Gains                              If sold or exchanged capital
    assets and have gains on and Losses
    distributions to shareholders of appreciated capital assets
    Schedule H (form 1120), Section 280H
    If a personal service corporation did not meet certain Limitations
    for a Personal Service
    distribution requirements Corporation Schedule PH (form 1120),
    U.S. Personal                             If a personal holding
    company Holding Company Tax Form 1118, Foreign Tax Credit (form
    1120);                         If electing to claim the foreign
    tax credit; separate (attached to form 1118 are Schedule I,
    forms 1118 must be filed for each of nine limitation Reduction of
    Oil and Gas Extraction Taxes                          categories
    that apply and Schedule J, Separate Limitation Loss Allocations)
    Form 2438, Undistributed Capital Gains
    If a Regulated Investment Company or Real Estate (attach to form
    1120-RIC or 1120-REIT)                             Investment
    Trust and had undistributed capital gains (continued) Page 30
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Frequency
    Form
    (annually unless applicability    Tax form
    otherwise noted) Explanation Corporations
    If taxable income or loss before the net operating loss Form 4626,
    Alternative Minimum Tax:
    deduction, plus adjustments and preferences, totals Corporations
    (file with form 1120)                                  more than
    $40,000 Form 5735, Possessions Corporation Tax
    If a domestic corporation engaged in a trade or Credit
    business within a U.S. possession on Oct. 13, 1995 and elected the
    benefits of the possessions credit Form 8810, Corporate Passive
    Activity                               If a personal service
    corporation or closely held Loss and Credit Limitations
    corporation with losses or credits from passive activities Form
    8827, Credit for Prior Minimum Tax                             If
    incurred an AMT liability in previous year and meet (file with
    form 1120)                                               certain
    criteria Form 8860, Qualified Zone Academy Bond
    If a bank, insurance company, or other corporation that Credit
    lends money and an eligible holder of qualified zone academy bonds
    Form 5452, Corporate Report of
    If made nondividend distributions to shareholders Nondividend
    Distributions Form 5472, Information Return of a 25%
    If had a reportable transaction with a foreign or Foreign-Owned
    U.S. Corporation or a                                 domestic
    related party foreign corporation engaged in a U.S. trade or
    business Form 8842, Election to Use Different
    If electing to use an annualization option under the Annualization
    Periods for Corporate                                 annualized
    income installment method to figure Estimated Tax
    estimated tax payments Form W-2G, Certain Gambling Winnings
    If business paid out reportable gambling winnings Source: GAO
    compilation of IRS information. Page 31
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Table
    II.5: Layer FourExcise Tax Requirements Administered by IRS Tax
    form                                              Frequency
    Explanation Form 637, Application for Registration
    As needed           If engaging in activities with excise taxes,
    entity must register Form 720, Quarterly Federal Excise Tax Return
    Quarterly           If engaging in activities with excise taxes;
    Form 720 covers most excise taxes (environmental, communications,
    air transport, fuel, retail, luxury, manufacturing, foreign
    insurance) Form 11-C, Occupational Tax and Registration
    Annually            If principal operator or employee-agent of
    businesses that accept Return for Wagering
    wagers Form 730, Tax on Wagering
    Monthly for the     If involved in the business of accepting
    wagers or conducting periods reporting wagering pools or lotteries
    taxable wagers Form 1363, Export Exemption Certificate
    As needed           If exporting property by continuous movement
    must file to claim exemption from the tax on transportation of
    property by air Form 2290, Heavy Vehicle Use Tax Return
    Annually (unless Any entity with a taxable highway motor vehicle,
    vehicles greater used for a partial than 55,000 pounds year) Form
    4136, Credit for Federal Tax Paid on Fuels       Annually
    If claiming the credit for federal excise tax paid on fuels;
    generally partnerships cannot file this form Form 5330, Return of
    Excise Taxes Related to          Annually            If there were
    nondeductible contributions or prohibited Employee Benefit Plans
    transactions or failure to meet certain other employee benefit
    plan requirements Form 6197, Gas Guzzler Tax (attach to form 720)
    Quarterly as        If manufacturer and importers (including
    individuals) that sell or needed              use automobiles that
    do not meet fuel economy standards Form 6627, Environmental Taxes
    (attach to Form        Quarterly as        If manufacturers or
    importer of ozone-depleting chemicals 720)
    needed              (ODCs) and entities that hold for sale or sell
    those products Form 8849, Claim for Refund of Excise Taxes
    As needed           If business paid excise taxes Source: GAO
    compilation of IRS information. Page 32
    GAO/GGD-99-133 Small Business Tax Requirements Appendix II Tax
    Requirements That Potentially Apply to Small Businesses Table
    II.6: Layer FourExcise Taxes Administered by ATF Form number
    Titlea F 5000.19          Tax Information Authorization F 5000.24
    Excise Tax Return F 5000.25          Excise Tax ReturnAlcohol and
    Tobacco (Puerto Rico) F 5000.25A         Excise Tax ReturnAlcohol
    and Tobacco (Puerto Rico) F 5100.12          Specific
    Transportation Bond-Distilled Spirits or Wines Withdrawn for
    Transportation to Manufacturing Bonded WarehouseClass Six F
    5100.25          Specific Export BondDistilled Spirits or Wine F
    5110.31          Application and Permit to Ship Puerto Rico
    Spirits to the United States Without Payment of Tax F 5120.20
    Certification of Tax DeterminationWine F 5120.24          Drawback
    on Wine Exported F 5130.6           Drawback on Beer Exported F
    5130.12          Beer for Exportation F 5170.7
    Application and Permit to Ship Liquors and Articles of Puerto Rico
    Manufacture Tax Paid to the United States F 5200.17          Bond,
    Drawback of Tax on Tobacco Products, Cigarette Papers,or Tubes F
    5210.5           Monthly Report  Manufacturer of Tobacco Products
    F 5210.8           Computation of Tax Agreement to Pay Tax on
    Puerto Rican Cigars or Cigarettes F 5210.9
    InventoryManufacturer of Tobacco Products F 5300.27
    Federal Firearms and Ammunition Excise Tax Deposit F 5620.7
    Claim for Drawback of Tax on Tobacco Products, Cigarette Papers,
    or Cigarette Tubes F 5620.8           ClaimAlcohol, Tobacco, and
    Firearms Taxes F 5630.5           Special Tax Registration and
    Return (Alcohol and Tobacco) F 5320.4           Application for
    Tax Paid transfer and Registration of a Firearm F 5320.5
    Application for Tax-Exempt Transfer and Registration of a Firearm
    F 1610.2           Special Occupational Tax Printing Request F
    5100.30          Continuing Export BondDistilled Spirits and Wine
    F 5110.67          Continuing Transportation Bond Distilled
    Spirits Or Wines Withdrawn for Transportation to Manufacturing
    Bonded Warehouse Class Six F 5110.68          Drawback
    BondDistilled Spirits and Wine F 5130.16          Tax Deferral
    BondBeer (Puerto Rico) F 5200.9           Certification of
    Prepayment of Tax on Puerto Rico Cigars, Cigarettes, Cigarette
    Papers, or Cigarette Tubes Report of Multiple Sales or Other
    Disposition of Pistols and Revolvers F 5300.9           Firearms
    Transaction Record Part IOver-the-Counter F 5300.24
    Firearms Transaction Record Part ILow VolumeOver-the-Counter F
    5300.9           Firearms Transaction Record Part IIntra-State
    Over-the-Counter (English-Spanish) F 5300.9           Firearms
    Transaction Record Part IINon-Over-the-Counter F 5300.9
    Firearms Transaction Record Part IILow VolumneIntra-State Non-
    Over-the-Counter F 5000.28          Floor Stocks Tax Return F
    5000.28T         1993 Floor Stocks Tax Return (Cigarettes) F
    5100.4           Certificate of Taxpaid Alcohol F 5110.3
    Drawback on Distilled Spirits Exported F 5110.5           Tax
    Deferred BondDistilled Spirits F 5200.23          Floor Stocks Tax
    ReturnPipe Tobacco F 5300.26          Federal Firearms and
    Ammunition Excise Tax Return F 5300.28          Application for
    Registration for Tax Free Transactions Under 26 USC 4221 (Firearms
    and Ammunition) F 55600.8          Statement of Adjustment to the
    Puerto Rico or Virgin Islands Tax Account
    (continued) Page 33                                 GAO/GGD-99-133
    Small Business Tax Requirements Appendix II Tax Requirements That
    Potentially Apply to Small Businesses Form number    Titlea F
    5600.26      Tax Collection Waiver F5600.33       Certification of
    Ultimate Vendor for Use in Tax Refund Claim Under Section 6416 (b)
    (2) of the Internal Revenue Code (27 CFR 53.179 (b) (iii)) F
    5600.34      Purchaser's Certificate of Tax-Free Purchase for Use
    as Supplies for Vessels and Aircraft (27 CFR 53.134 (d) (2)) F
    5600.35      Purchaser's Certificate of Tax-Free Purchase for
    State or Local Government Use (27 CFR 53.135 (c) (1)) F 5600.36
    Vendor's Certificate of Tax-Free Purchase for Resale for Export
    (27 CFR 53.133 (d) (2)) F 5600.37      Vendor's Certificate of
    Tax-Free Purchase for Resale for Further Manufacture (27 CFR
    53.132 (c) (2)) F 5600.38      Application for Extension of Time
    for Payment of Excise Tax F 5610.6       Consent to Extend the
    Time to Assess ATF Excise Tax F 5630.5R      Special Tax "Renewal"
    Registration and Return F 5630.5RC     Special Tax Location
    Registration Listing F 5630.6A      Special Tax Stamp F 5630.7
    Special Tax Registration and Return National Firearms Act (NFA) F
    5632.1       Special Occupational Tax Inquiry Letter F 5640.5
    IRC Guideline/Worksheet for Late Excise Payment/Deposit or Tax
    Return F 5150.35      Bond for Spirits or Distilled Spirits or Rum
    Brought Into the US Free of Tax (used by Virgin Islands) F 5150.36
    Bond for Articles Brought Into the U.S. Free of Tax (used by
    Virgin Islands) aWe did not compile information regarding the
    applicability or frequency of ATF excise tax requirements. Source:
    GAO compilation of IRS information. Page 34
    GAO/GGD-99-133 Small Business Tax Requirements Appendix III
    Simplified Audit and Dispute Resolution Processes This appendix
    illustrates a simplified process for auditing tax returns,
    resolving disputed taxes, and collecting taxes owed. For the small
    percentage of returns that are audited, most tax issues are
    resolved during the audit process. However, some audited taxpayers
    dispute their additional taxes to Appeals, and a few seek to
    resolve their disputes with IRS in the courts. Page 35
    GAO/GGD-99-133 Small Business Tax Requirements Appendix III
    Simplified Audit and Dispute Resolution Processes Figure III.1:
    Simplified Audit and Dispute Resolution Processes Page 36
    GAO/GGD-99-133 Small Business Tax Requirements Appendix III
    Simplified Audit and Dispute Resolution Processes Page 37
    GAO/GGD-99-133 Small Business Tax Requirements Appendix IV
    Comments From the Internal Revenue Service Page 38    GAO/GGD-99-
    133 Small Business Tax Requirements Appendix IV Comments From the
    Internal Revenue Service Page 39
    GAO/GGD-99-133 Small Business Tax Requirements Page 40    GAO/GGD-
    99-133 Small Business Tax Requirements Ordering Information The
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