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My understanding is that if a little guy evades taxes, but then cooperates with the IRS when caught, and agrees to pay all taxes and interest and penalties, then they generally don't get thrown in jail and have all their other money and possessions and responsibilities taken away, as this article seems to imply they should do with billionaires.

I don't see how this is evidence of special treatment for billionaires. The guy paid way more in penalties than he saved on taxes and also had to help prosecute his friend, who evaded way more tax than he did. It doesn't seem to me like he came out on top.

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There are four differences. First, the IRS prosecutes a lot more low-income people than high-income people (by percentage as well as by absolute numbers) so a billionaire has much better odds of not getting caught. Second, billionaires have access to better layers, accountants, publicists and politicians to give them negotiating leverage if they do get caught. Third, the payoff for a billionaire successfully cheating on their taxes is much higher than for a non-billionaire. And finally, even if a billionaire does get caught and pays all their back-taxes with penalties, they will still most likely be a billionaire and be able to sustain a pretty posh lifestyle. So the expected value of the tax-cheating lottery is much higher for a billionaire than a normal person.

> even if a billionaire does get caught and pays all their back-taxes with penalties, they will still most likely be a billionaire and be able to sustain a pretty posh lifestyle

By that logic, if they just pay their taxes it won't affect their lifestyle either, so their incentive to cheat is also lower.

> the payoff for a billionaire successfully cheating on their taxes is much higher than for a non-billionaire

In absolute terms, sure. And in absolute terms the penalties are much bigger too.

> the IRS prosecutes a lot more low-income people than high-income people (by percentage as well as by absolute numbers) so a billionaire has much better odds of not getting caught

Your conclusion doesn't follow from your evidence. It's possible that low income people are cheating taxes at a higher rate than billionaires. I really don't have a lot of trouble believing this; small tax fraud is widespread, even accepted by a lot of people.

> billionaires have access to better layers, accountants, publicists and politicians to give them negotiating leverage if they do get caught

I don't see any evidence that this guy got a better deal than he should have.

The point of tax enforcement is not to punish billionaires for being billionaires. The point of tax enforcement is to ensure taxes are collected. If you think taxes are too low, or just want to punish billionaires more harshly because they're billionaires, then Congress is the place that has to be changed.

The point about the IRS auditing poor people more than rich people was in the news some months ago. The IRS confirmed that they don't prosecute the rich because they can't afford to go after them.

Source: https://www.propublica.org/article/irs-sorry-but-its-just-ea...

Your claim that the IRS doesn't prosecute the rich is simply false. https://www.irs.gov/about-irs/irs-audit-rates-significantly-...

I definitely think the wealthy should be held to a higher standard than the poor. Not only is the magnitude of their crime bigger, but their is less justification for it.

There is evidence he worked out a deal with the removal of deductions regarding his charity... why did they remove those deductions? If he’s entitled to them... clearly it was done as a negotiating piece.

How many average Joe’s have 180 million in deductions to negotiate with?

> why did they remove those deductions?

yes, it is 3-pronged

a) easy to identify

b) liquidity, easy to use for payment

c) kickback and relax, emphasis on kickback

c might sound annoying, but the revenue service has the primary goal of revenue. replenishing the treasury so it can make its own interest payments. you might say, "well take that and still jail the people". okay, I guess. it could have happened here.

all parties in this case acknowledge that a court case would not have any guaranteed results, specifically because of your second sentence:

> Not only is the magnitude of their crime bigger, but their is less justification for it.

The justification is actually broader. Like, sure if the billionaire lacks a justification for paying yes, but the reality is that the government doesn't know WHICH justification the billionaire is using. That's the game. They can be totally blindsided. And then there's the jury, yeah sure a jury with populist sentiment against billionaires combined with a jury judging a black man, doesn't sound great for the defendant but that overlooks everything that was attempted. The man tried to use the amnesty program that the US government set up, and the government denied him! The man already snitched for the government on his first investor who set him up for life! The man tried filing amended tax returns. The jury might actually take a dim view on the state for that, I could totally see a hung jury. And then his lawyers can totally drop some legal opinions they made years ago that showed a justification the government didn't expect at all, shifting liability away from the defendant.

> By that logic, if they just pay their taxes it won't affect their lifestyle either, so their incentive to cheat is also lower.

Not quite.

You need to think about when they have the money. It is “capitalism” after all, not “moneyism.” If you build/invest-in something using $10mil that should have been tax, with a decent ROI you might make that money back in 5-10 years. Now you have the original money, plus own something that continues to make money. Income++, but your “back taxes” are still the same for the earlier fraudulent period.

(assuming the IRS doesn’t take stuff like this into account when dealing with collecting “back taxes”)

The IRS is not stupid. They charge interest and add penalties on top. This guy saved $43m and paid $137m plus a bunch of other stuff. He did not come out ahead.

> Third, the payoff for a billionaire successfully cheating on their taxes is much higher than for a non-billionaire. And finally, even if a billionaire does get caught and pays all their back-taxes with penalties, they will still most likely be a billionaire and be able to sustain a pretty posh lifestyle.

This is the weird part to me. I don't think the marginal payoff is higher for a billionaire, other than in ego or ideological or other less-rational terms.

Someone making 50K who scams an extra 2K out of their taxes has gotten themselves a pretty big boost to their disposable income. While a billionaire already has millions to play with...

I would support higher and harsher penalties for larger absolute amounts of tax fraud, though, because you're depriving your fellow citizens of more if you're keeping larger $$ amounts.

Yeah, it's not intellectually honest to argue "a billionaire committing a billion-dollar tax fraud has a lot to gain, because a billion dollars is a lot of money, but a billionaire getting fined a billion dollars is nothing to him, because diminishing marginal utility."

How is it dishonest? They have a lot to gain financially, and the penalty for doing so (although steep) is not significant enough to have a material impact on the person committing the fraud. That seems like the exact moral hazard that creates this situation.

For a poor person, the same situation is likely life-altering in either case.

> How is it dishonest?

Either a billion dollars is a lot, or it is not.

Can you edit your comment to add "To the same person". Some people replying seem to be having a very hard time with it.

$1,000 to you is (probably) not a lot. For someone in a third world shithole it's several years to a life time of earnings. Perspective matters when determining if something is "a lot" or not.

Well, yeah, obviously.

But using in the same sentence as both, depending on the point you're trying to prove, is a little dishonest.

As MrPatan pointed out in a sibling comment, the sentence is about the same person.

1 billion dollars to someone who has 2 billion dollars is not a lot.

1 billion dollars to someone who has 0 dollars is a lot.

Keeping a billion for certain is not equal to a 1% chance of paying a billion if, and only if, getting caught. That creates an incentive.

It's clearly both. The behavior of the billionaires makes that clear. Billions of dollars is enough incentive to commit tax fraud, and (hundreds of) millions of dollars in fines has not been enough to disincentive tax fraud.

To the latter part of top post, for a billionaire utility value and expected value are equal as if he gains or loses a few million it doesn't matter. For smaller player they can be completely different, yes a few thousand can be a good income gain, but getting caught can mean they get completely ruined.

So if expected value of tax cheating in vacuum is - lets imagine - 20% of the amount of taxes cheated, billionaire should cheat on taxes in every situation, as they simply gain 20% on average. Smaller player shouldn't, as even though their expected value is the same, their utility value can be completely different as they might take a risk of ruining their business and losing future income and hugely lowering their quality of life.

edit: and also for small amounts the way down is much harsher on the utility value, so being a favorite to gain 10k might not be worth it, if the possible -15k means your lifestyle suffers.

I think you're leaving out enforcement costs.

If you're little and scamming a few $k here and there, the ROI (Return on Investigation) for the IRS to go after you is tiny. It's probably not worth assigning an investigator.

If you're HUGE and scamming billions, the ROI is there but you also have the capabilities to defend yourself, obfuscate things, etc so it's unlikely they can destroy you. Therefore, it's not one investigator but a team with forensic accountants, potentially informants, etc.

For everyone else, the danger is in the middle. Where you have enough that you can lose a life-destroying amount but you don't have the means to protect yourself. That is a great target for investigators.

In short, as you gain more, be careful and have a good accountant who follows the rules to the best of their ability.. until you can make the rules.

Oh crap.

> Someone making 50K who scams an extra 2K out of their taxes has gotten themselves a pretty big boost to their disposable income.

another way to think of this is in the difference of relationship to money between a billionaire and a in comparison poor person. give 2K to the avg Joe/Jane they'll circulate it back into the market by purchasing while the billionaire sees themself as a "steward of their fortune" and who would keep in their accounts. (also the reason why trickle-down Reaganomics doesn't work).

Also to a billionaire there is a high chance justifying tax-avoidance (and evasion) is easier since they anyway do it using multinational corporations. And obvs. it's more work to go after big cases where the fight is about proofing overstepping the line between avoidance/evasion while with poor people the case is usually about just evasion.

I'll continue to recommend this here whenever the topic comes up: https://en.wikipedia.org/wiki/Treasure_Islands:_Tax_Havens_a...

To a person dealing with the IRS over millions, a whole team of lawyers at $1k/hour each is a drop in the bucket. to a person who cheated uncle sam of $2k, its cheaper to settle (even with penalties) than to hire a single lawyer to represent them. That is why the IRS loves going after the little guys, they don't fight back.

They often don’t fight back because it’s often a fairly clear-cut matter where the taxpayer is in the wrong and both sides just move to resolution.

Loves is a strong word. I think it makes more sense to say that the IRS doesn't have the budget or resources to go after the big players. Yes, people cheating only $2k probably won't pay for a lawyer but from the IRS side it's just much simpler to analyze and prove that person is in the wrong. See this article from ProPublica https://www.propublica.org/article/how-the-irs-was-gutted

>This is the weird part to me. I don't think the marginal payoff is higher for a billionaire, other than in ego or ideological or other less-rational terms.

It is higher in a very real and measurable way: it's way more money.

Doesn't have to higher as a "marginal payoff". (Besides that would imply that if the billionaire didn't get any real benefit or pleasure from the non-taxed money, they should face no penalty).

Billionaires think differently about money than non-billionaires. Ordinary people use money to exercise control over their own lives. Billionaires use money to exercise control over other people's lives, and when that is your goal, a few extra billion dollars means a few extra tens of thousands of people you can put on payroll to do your bidding, whatever that might happen to be. It lets you do things like run for president or go into space. It's not my cup of tea, but it's not fair to call it "irrational". Some people just want different things.

It might be rational to want those things. But I think I would argue that people largely shouldn't be able to have them.

> the IRS prosecutes a lot more low-income people than high-income people (by percentage as well as by absolute numbers)

I'm not sure how this is relevant. As of October 2020, there were 614 billionaires in the US[1]. Of those 614 people, only a few of them are likely breaking any sort of tax law (billionaires have a lot of money to make sure they take advantage of loopholes, without breaking the law). So there isn't some big list of billionaires that the IRS could be going after but is choosing not to.

So the question is, are there known billionaire tax evaders that aren't getting prosecuted? That should be the only question that matters. Using statistics in this case would likely lead to more injustice than less, as the only way you could get billionaire vs non-billionaire prosecutions rates to align is by prosecuting billionaires that aren't breaking the law. (edit: unless there are many billionaire tax evaders that are just getting away with it, of course. I don't know if that's the case or not)

[1]: https://en.wikipedia.org/wiki/List_of_Americans_by_net_worth

the typical billionaire can easily go to another country (and immediately get a passport if they wish). it helps looking at this not just from an US/Western pov but how Chinese, Russian, African billionaires are quickly feeling at home in places like US[1], UK, Switzerland. There is a lot more money to be made (and washed) in places like Africa / Asia that requires a "safe haven"

[1] the US today is one of the biggest tax-havens in the world (source: "Treasure Island") and the OECD crackdown on the usual suspects (Cayman, Channel Islands, ...) never hurt anyone since the US really just wanted a slice of the off-shore pie (which anyway exists whether with or without the US as a tax-haven).

> First, the IRS prosecutes a lot more low-income people than high-income people (by percentage as well as by absolute numbers) so a billionaire has much better odds of not getting caught.

That assumes they cheat at the same rate.

Is there any reason to believe that billionaires don't cheat more? I don't think billionaires are rich because they're more talented. I think they're rich because they're more opportunistic and, quite frankly, shittier human beings.

> I think they're rich because they're more opportunistic and, quite frankly, shittier human beings.

That's a common perception, but is not based on reality. May I suggest:

https://www.jstor.org/stable/1061637

This is the most condescending response I have ever received on HN. I do not find that link helpful and it's really insulting. You immediately jump from "he doesn't agree with me" to "you are ignorant and need to be educated as such until you agree with me."

Most of my perception is based on billionaires I know in real life. It's anecdata but it's enough to persuade me. I choose not to talk to one after he became rich because he became such a horrible human being. The others roughly follow the same trend. All of them are rich or became rich by shitty means.

If you'd written the post with that second paragraph, i.e. provided a basis for your opinion, I wouldn't have replied that way.

As it was written, though, no basis was provided. The opinion was congruent with that of people who believe economics is zero-sum, which is what I inferred you meant from "shitty means".

As for me, although I've personally met Steve Ballmer, Bill Gates, and Paul Allen, I hardly know them. I have read their biographies, and the biographies of many American billionaires, and would not agree that any of them came by their wealth through "shitty means".

The term "shitty means" isn't exactly an economic term, and I'd be curious what you mean more specifically. I'll start by saying an ethical way to become a billionaire is by providing a product or service that people are happy to pay for. Gates, Ballmer, Allen, Jobs, Bezos, Musk, etc., all fit into that category.

I'll close by apologizing to you.

I appreciate the apology and admit I overreacted. I owe you an apology as well. You're right - my first post did not have a lot of information, and my language was belligerent (in both of my replies).

I've been having a bad day and you caught me at a bad time. That's my fault and I need to take a break from the internet. Have a good night.

Thanks for the nice reply. Enjoy the evening!

From the IRS...

'IRS estimates that between 21 percent to 26 percent of EITC claims are paid in error. Some of the errors are unintentional caused by the complexity of the law, but some of the claims are intentional disregard of the law'

That statistic is irrelevant since it doesn't distinguish between rich and poor. But the IRS has publicly admitted to not pursuing rich people because "it's too hard."

https://www.gq.com/story/no-irs-audits-for-the-rich

Income audit rates...

Income Range/Percent Examined 2015

1-$25,0000/.66

…

$10,000,000+/8.16

"The typical audits for higher-income taxpayers involve at least three different tax years, often include related entities, and routinely take years to resolve. The highest income taxpayers face the most significant chance of an examination, and they face the most highly trained and experienced IRS agents and teams utilizing our most sophisticated tools and techniques."

https://www.irs.gov/about-irs/irs-audit-rates-significantly-...

Thank you. This is much more useful!

The IRS audits most poor earners because of rampant Earned Income Tax Credit fraud. Audit rates though of the really rich are 30x that of the poor.

But won't the billionaire be highly unlikely to have any hand in doing their own taxes? I'd imagine that you'd have someone doing that for you and have no idea of the details.

I'm significantly poorer than the billionaires, but the only thing I know about taxes is what forms I need to gather and mail to my tax guy.

Billionaires will typically give an indication to the people they hire to prepare their taxes how hard s/he wants them to lean on the rules.

It should be taken into consideration that it's much harder to prove that the billionaire actually cheated vs. a regular Joe, who may simply have lied on his taxes. The IRS, in the vein of all prosecutors, will not prosecute unless they can make a strong enough case to make a conviction highly probable.

The IRS has nice little boxes that the low income people can fill in that are blatantly obvious when fraudulent. It's not the IRS's fault that people think they can fudge some number and it not instantly get flagged on entry into the computer.

My dad had a similar experience with the IRS. He had startd a small business and was supposed to be paying something monthly, but he thought it was quarterly. He got fined, and when he mailed in his payment, he included a letter explaining that it was his first time running a business, and it was an honest mistake. ~6 months later he got a check back from the IRS for the fine amount, plus interest. They seem to be pretty lenient as long as you aren't actively trying to make their lives difficult.

Are you comfortable sharing what year this was?

I don't remember the exact year, but it was around 20 years ago.

>My understanding is that if a little guy evades taxes, but then cooperates with the IRS when caught, and agrees to pay all taxes and interest and penalties, then they generally don't get thrown in jail and have all their other money and possessions and responsibilities taken away, as this article seems to imply they should do with billionaires.

Maybe, but that's sort of like how a person who slaps somebody usually doesn't get jail time compared to the person who beats somebody to a pulp.

The billionaire tax cheat has much larger impact on society. And the billionaire has much less justification for doing so (if they pay their taxes properly they're still a billionaire).

The IRS has a lot of leniency because they know paying taxes is hard. Tax Court is one of the few places where you can SOMETIMES claim ignorance of the law as a valid defense to get penalties and such removed.

Yes, why don't we prosecute a one-time shoplifter the same as a guy who stole so much he used it to fund a shoplifting conspiracy, then paid a bunch more to various PACs and related contributions to not go to prison for it?

The obvious, trivial answer of course is that in tax law, how much you evaded determines the severity of the crime.

Yeah, generally criminal prosecution is reserved for the really egregious cases, such as complete failure to file or failure to claim large amounts of income for substantial time periods.

The claim is that he didn't declare $200M in income and hid it in off-shore accounts over a decade. Sounds like a large amount of money and a substantial time period.

>> My understanding is that if a little guy evades taxes, but then cooperates with the IRS when caught, and agrees to pay all taxes and interest and penalties, then they generally don't get thrown in jail

Where in the world did you get this idea? If you don't pay fully or on time, but don't lie, they just make you pay, because that's not "evasion."

Elaborate premeditated lying using fake books or shell corporations to deliberately hide assets is a serious crime, which the rest of us can't get out of with our armies of lawyers and well placed phone calls to politicians.

> My understanding is that if a little guy evades taxes, but then cooperates [..] then they generally don't get thrown in jail

This is how it more or less works in my country but you do have to file a "active repentance" form and spill out of your misdeeds. Otherwise, anything you tried to hide, will work even harder against you.

> The guy paid way more in penalties than he saved on taxes

Is this a fact?

The article states that he saved $43m and paid $137m plus several other things.

Is it certain that he had saved only 43 million though? Couldn't it be the case that they only found 43 million? If there's more hidden away and out of reach of the authorities, then he could still have beaten the system if that sum exceeds the penalties paid.

You have no basis for believing this. All I know about this is what I read in the article, and the article is clearly intended to show this guy in the worst possible light. If there was any hint that your conjecture might be true then I expect it would have been mentioned.

I don't believe it. I'm trying to ascertain the likelihood of it being true. I've seen people escaping these authorities by using cryptocurrencies and whatnot.

Billionaires can avoid paying taxes equal to what people make in life time. It is fraud.

Why should Bernie Madoff gone to jail then?! if some guy can steal a car then?

The scale matters.

Bernie Madoff went to jail because he ripped off very rich people, and, even more importantly, humiliated and betrayed them.

I suspect, if the victims of his schemes had just been a bunch of plebes like us, then he would be sunning on the Riviera, right now.

Billionaire John Kapoor is in prison for another half decade for bribing doctors to prescribe opioids. Another example is the Jeff Skilling who went to prison for 15 years for ripping off customers, employees and shareholders, most of whom were not rich people. I don't think your narrative accurately reflects the facts.

> most of whom

It just takes one...

Have a great day!

> Why should Bernie Madoff gone to jail then?! if some guy can steal a car then?

Fraud and tax fraud are different crimes, and even if they were the same the number of counts in Madoff's case would be vastly different.

In other words, you're much better off committing tax fraud than running a Ponzi scheme targeting rich people. Plus, I suspect that if Madoff had walked he would have died shortly thereafter in some freak accident or an apparent suicide .

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