Fox Manufactures New IRS Scandal Over Bush-Era Policy Change

Fox News is attempting to manufacture another Obama administration scandal by fearmongering about letters sent to small businesses asking them to explain discrepancies in revenue -- the result of a policy change made under the George W. Bush administration.

The August 15 edition of Fox & Friends reported that the Internal Revenue Service had sent letters to certain small businesses, asking them to explain why their revenue showed a disproportionately high number of credit and debit card transactions. Guest co-host Peter Johnson Jr. called the letters “unsettling” before playing a clip of Rep. Darrell Issa (R-CA) tying the story to the improper targeting of certain political groups by the IRS. While Johnson admitted that “it happened in the past,” the show continued to fearmonger about the letters, asking, “Are there other illegal things that are going on? Chairman Issa and U.S. attorneys are looking at the IRS, and there's some inference and implication that there may be” :

But the IRS letters have nothing to do with political ideology. The Washington Post reported that the letters were sent out based on collected information about credit and debit card transactions:

In short, the agency is hunting for firms that reported an unusually large share of receipts from card transactions, questioning whether they left out some harder-to-track cash payments, which are more often underreported.


IRS officials say the letters do not constitute an audit and that they are simply requesting a second look from some employers.

“We want to reassure the relatively small number of business owners who receive these letters that the IRS is requesting information based on what the taxpayer reported on the return,” officials wrote in a statement sent to On Small Business, adding that the agency is “giving taxpayers the opportunity to explain and fix errors.”

In addition, the program is a result of policy change enacted in 2008 in order to address the “tax gap.” The Wall Street Journal explained that underreporting of income, including the cash sales that the letters are intended to address, “accounted for $376 billion” of the total $450 billion gap:

The program is the latest move in the agency's effort to combat what it sees as a widespread problem: failure by businesses, including mom-and-pops, to report all cash sales in order to minimize tax bills.


The IRS program stems from a 2008 change in the law that gave the agency broader access to merchants' credit- and debit-card transaction records. The IRS has been comparing the data to information that small businesses report on their tax returns. If the data suggest an unusually large percentage of a business's receipts come from card transactions, the IRS might send a letter asking the business owner to explain why cash receipts seem relatively low.

Underreporting of income comprises the majority of the so-called “tax gap,” the difference between what Americans owe and pay, according to IRS data. In 2006, the most recent year available, the total tax gap was $450 billion. Underreporting accounted for $376 billion of that total, and underreported small-business income totaled at least $141 billion.