GAO: IRS Should Improve Sole Proprietor Loss Deduction Compliance

Hey there, sole-proprietor, Mr/Ms Risk-Taker-Because-I'm-Running-My-Own-Business. Enjoying those losses that are inevitable as a startup or because of the slack economy? Well, the IRS isn't. They're miserable about it. Tax revenues are down. The "tax gap" is huge. They think they're not doing their job well enough. Know what'll make them feel better? That's right, a crackdown on you:

One approach for limiting sole proprietor loss noncompliance would impose a rule that limits losses that could be deducted from other income. The tax code has a number of such limitations. A loss limitation could reduce noncompliant losses but would also limit the ability of sole proprietors to claim legitimate losses. Another approach would improve IRS’s estimates of the extent to which activities not engaged in for profit, such as hobbies, are contributing to noncompliant sole proprietor losses. Expenses associated with these activities are not deductible, but IRS’s research on the causes of sole proprietor noncompliance has not used available data to estimate the extent of this type of noncompliance. Without such an estimate, IRS could be missing an opportunity to reduce noncompliant sole proprietor losses.

Once again, the IRS' solution for closing the "tax gap" is to endlessly harass those who actually file and pay timely. Forget those other scofflaws who don't bother to file. Tracking them down and getting them in compliance takes too much time and effort. Not when these fish are in this barrel.