IRS audits poorest families at five times the rate for everyone else
trac.syr.edu
trac.syr.edu
The IRS estimates 21-26% of all EITC claims are improper. The rules are quite complex, which results in more errors and it is relatively straightforward for the IRS to detect certain classes of mistake or fraud through automation (i.e. to detect if the same child was claimed as a dependent by two different people on their return).
Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that?
Source? What category of stuff the IRS ignores adds up to more than $20 billion?
The IRS estimates there's a net tax gap of $554 billion in 2019. They break it down into 5 categories with values from 2011-2013 that all are over 20 billion each: underreported income, over/misreported adjustments, underpayment, non-filing, and other underreporting. They note that their 2011-2013 estimate failed to include underreporting of offshore wealth and wealth going through pass through entities, which resulted in a tax gap of $33 billion per year to the 2011-2013 estimate and 46 billion for 2019.
They can send a letter asking for documentation for everything the automated system flags. The automated system detects "simple" cases at a far higher confidence ratio, which tends to be lower income. Once you get upper income, with all manner of complicated itemized deductions, the confidence of the automated system is much lower, and the effort to ask for appropriate documentation, and verify it, is much higher, for a much lower expectation of return (since, again, low confidence from the system).
>I missed it on my own review because it was one of many returns I had to file.
Honestly, I look through my returns but they're way past the point where I could find most errors even though my finances aren't especially complex.
> A critical limitation in the IRS’s ability to audit millionaires is the availability of IRS revenue agents. Only this class of auditors, given sufficient training and experience, are qualified to examine complex tax returns – the types of returns typically filed by high-income individuals and large-scale businesses.
> With severe budget constraints, IRS has tended to trade off the replacement of revenue agents with hiring more tax examiners. These certainly are paid less, but they are also less knowledgeable. While revenue agents used to outnumber tax examiners, this has slowly shifted over time.
https://www.finance.senate.gov/ranking-members-news/irs-budg...
> IRS Research Division estimates in the 2003 GAO report, however, placed returns for activities such as tax enforcement at more than ten – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return 13 dollars for every dollar spent. Audits by mail returned as much as 11 dollars for every dollar spent. Using the overall rate of a four to one return, this year’s $100 million budget cut translates to a $400 million loss.
Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.
It's frustrating that every business person who has ever lived would absolutely throw money at that formula if it was part of their business, but that's not politically popular because the IRS costs money to operate.
Mathemarically it makes sense to go until you hit 1:1. If we increased enforcement until, say, 4 dollars collected for every 1 spent in each of the major categories, the deterrent factor would probably help people be more honest in times of dishonesty, naturally helping the problem for the following year.
Maybe mathematically. But realize that the targets of the audits are probably bearing at least as much of the cost burden of the audit as the IRS whether they did anything wrong or not. And you'll almost certainly cost a lot of people who made honest mistakes a lot of money.
So, no, it's not at all clear that the IRC should be revenue-maximizing.
Nah, until we get better returns on other endeavors for the same dollar.
Not really [1]. When you make more than $500k, your audit rate doubles from the national average of 0.25%. It doubles again at $1mm and more than doubles once more at $5mm.
EITC-only returns are audited around the frequency (0.77%) of someone making $500k to $1mm. I'm not sure why $1 to 25k is audited at the same frequency as $500k to $1mm. But given "from fiscal years 2010 to 2021, the majority of the additional taxes IRS recommended from audits came from taxpayers with incomes below $200,000" and that "EITC audits are primarily pre-refund audits and are conducted through correspondence," it seems--very roughly--closer to the optimum than the headline suggests.
Correcting a simple error might never even involve a human IRS auditor. It's as simple as an automated letter going out and instructing someone to correct an obvious mistake (this happened to me).
Never spoke to anyone - just submitted the correction. There should be no limit to audits that are nearly-automated, regardless of whom they target.
Audits that require an investigator are far more effort and those investigative resources need to be proportioned by the expected return on investment. ...and while that will likely tend more frequently to the rich, it shouldn't necessarily be so.
This is what a typical audit of EITC looks like. It is literally "send us some forms and some proof like a birth certificate showing you're the parent of the child you're claiming".
That is a strong statement! It is not true, some times that is where they are.
Actually if it is the only place you could find them (the rest of the street is too dark, you do not have a torch to see or fingers to feel....) it is an optimal, albeit dismal, strategy
Loving digression.....
https://en.wikipedia.org/wiki/Streetlight_effect
>A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, "this is where the light is".
Hence, the drunk and the policeman are never going to find the keys under the streetlamp because they were lost in the park.
Some really large proportion of Americans are basically W-2 filers taking the standard deduction. These Americans have no opportunity to evade taxes.
Most income tax fraud probably takes place in the area of passthrough businesses and other areas where tax verification isn't simply a problem of reconciling what employer A (or brokerage B, for dividends and stock sales, or bank C, for interest) said they paid to person P with what person P reported on their return.
TL;DR - it's hard to execute a fraud when the IRS already has the corresponding 1099s on-file for you.
I think there’s a lot of opportunity related to kids. Deductions and credits vary and can be mistakenly or willfully claimed.
I think there is a misunderstanding of what an 'audit' means. It can be as simple as a letter from the IRS (after their analysis alerts them) asking that certain documents be provided to support a deduction or otherwise. The IRS is not conducting large scale audits on people with low incomes it would not be feasible there is not enough to even dig into.
What the government (in this particular case for the EITC) should be easy for the taxpayer to reply with info needed to dispute the claim.
(and many would politically be against the data collection that would be logically necessary to determine many of the common credits/deductions)
You can opt in to auto-filing by allowing data sharing with the IRS. People who appreciate the convenience can opt in and those who don't can just not (instead manually providing the requisite documents/proofs/numbers just like today).
There also is the problem that if they auto-prepare returns they're telling the taxpayer exactly what they know and thus how the taxpayer can cheat with a low probability of detection.
I don't think that's an adequate reason against automating it, though. What I would like to see is say March 1 they mail out pre-filled tax forms, except every line has an extra box on it that's empty. If you think it's right you simply sign and return it with payment if needed. If you have minor disagreements with it (for example, it's unlikely they'll know everything for schedule A) you can fill in the extra boxes with the correct values. You may then either propagate those numbers through and pay the adjusted amount, or you can ignore this part, they update the return with your new numbers and send you a bill. Lastly you can bin it and do it yourself from scratch.
Although, the consequences of the "default" values are something that both sides of the aisle are almost certain to take issue with. The left will likely not be happy that the default values result in "overcharging" those due social credits, and the right will not be happy that the default values make it easy to get away with failing to report income that isn't 1099/W2. This would likely result in arguments over how to solve that problem ... this is the data collection issue I'm referring to.
We do this every year to double check that we haven’t missed anything. It’s usually incomplete on April 15, but tends to be pretty complete by mid-summer (and 4868 gives you an automatic extension of time to file [but not to pay])
There’s no secrecy need at play here.
The EITC is actually a social welfare measure masquerading as a tax policy, and subject to all the problems that implies.
The US has >0 people who do not use computers, though, so a manual intervention process is necessary.
"As a lower bound, about half of the spike [in operational audit selection rate on the lower end of the income spectrum apparent in 2014] is explained by EITC-eligibility-related projects" [1].
I love the advanced level of neoliberalism we're seeing now. Oh no, poor people aren't committing tax fraud properly, gotta run after them. Meanwhile pretty much every US corporation abuses tax laws to the absolute limit to serve their shareholders (on the order of trillions of dollars of lost revenue), and somehow that's "okay" (i.e. the IRS doesn't audit them and the justice dept doesn't go after them)
Corporate auditing is down, but with audit rates at 50% for $20+ billion in assets and 22% for $5 to 20bn [1], corporate America is the most thoroughly tax audited slice of the country.
> the justice dept doesn't go after them
Yes, it does [2].
[1] https://www.washingtonpost.com/business/2021/07/14/corporate...
Yes.
Or, better yet, just give it to everyone and pay for it by:
1. Eliminating the carried interest tax credit, which has somehow survived 15+ years. It is quite literally a giveaway to hedge fund managers who get to pay lower taxes on managements because reasons. It most recently survived by being removed from the Inflation Reduction Act at the behest of Senator Kirsten Senema (D-AZ);
2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt;
3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes;
4. Tax stocks on market value every year just like we do with property.
Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous.
Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources.
In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.
The IRS doesn't author tax policy. Congress is over there --->
Why would anyone who made under $50,000 or $100,000 ever bother to pay one cent of taxes if you did that?
Take it further: the IRS just gives you a form at the end of the year saying your income was $X and your taxes withheld were $Y. Sign here to get a refund or pay the shortfall (which, if withheld correctly, there should never be a shortfall).
That's actually how it works in most developed countries.
As for small businesses (the vast majroity of non-W2 employees), sure, audit them if they have been running a restaurant for years and weirdly have never drawn an income.
Furthermore, the system doesn't work too well with variable incomes (it's based per-check) and should two married people both have variable incomes it can't work, period. (We are both self-employed--and some years ago I threw in the towel on even trying to get it right. I simply stay at the safe harbor limit. Come Apr 15 I expect to be off by 4-digit amounts, but it could be in either direction.)
And your threshold won't catch most cheating. Not drawing an income will of course be suspect, but the guy who reports $50k but took $30k in cash out of the till over the year won't show up on your radar. I actually get a 1099 but my wife does not--no computer can know if she's reporting accurately. They would have to do a bit to even realize she's working (she's past retirement age.)
... how long do you think it would take for everyone of those W2 employees to be filing for the Foreign Tax Credit every year if it were illegal to audit them?
> Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes;
This works for billionaires but harms regular people. If you applied capital gains tax to grandpa's modest gift to his grandchildren the grand children may very well end up with nearly nothing. In many states property taxes are reassessed upon property transfer in a will, so if your grandparents/parents had a really good property tax rate, you may end up paying so much tax that you can't afford to keep the house.
There are already enough ways to rob the middle class. No thank you.
> Tax stocks on market value every year just like we do with property.
This isn't done because the universe of ways you can move, adjust, hedge, and sell stock is too broad. Again, this inadvertently damages the middle class who by-and-large are passive investors. I already pay enough tax, thank you.
> Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous.
If you look at the problem from the perspective of a relatively understaffed organization it is far easier to automate the common errors less well off people make. Having been on the receiving end of this majority of the audits are a simple letter saying "you screwed up, you actually owe this much" and nothing more. Auditing the ultra-wealthy takes an actual dedicated team to do because the ways that these people illegally hide money are complex and ever-changing. This is why nothing we have done to repatriate USD, or "tax the billionaires" has worked since the dawn of the country.
It honestly sounds like your statement here is actually a thin veil over just letting anyone making under $N exploit the system at (once again) the cost of the middle class. Moreover, the title of OP is deliberately inflammatory. The audit rate below 100k is extremely low. The delta can be explained by the difficulty involved.
> Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources.
It is possible to commit extremely complex fraud with the EITC. I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS too regardless of how much more or less than me they make.
> In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.
lol.
This sounds like a Chuck Tingle commission waiting to happen
That's such a funny remark. First, this implies the tax rate is 100%. How else could you end up with nothing? Long term capital gains is what? 20%? If the "modest gift" of a $1 million house with a cost basis of $300,000 results in $140,000 in capital gains taxes, you still have $860,000.
Hell, you can even have the system defer those taxes until the sale of the property (eg capped at 10 years) if you're worried about undue hardship.
But the house has its cost basis reset to $1 million, which in insane. In some places, you even get to inherit the ridiculously low property tax rate, which was another result of homeowners voting themselves massive tax breaks.
Second, these completely made up emotional anecdotes about regular people are so often used to defend practices whereby billionaires get to pay nothing. It's an appeal to emotion and a complete distraction. I don't know if you're just an unwitting victim of this propaganda (which it is) or you're one of the many bad faith pundits who use this appeal for the real goal: protecting the wealth of rich people.
> This isn't done because the universe of ways you can move, adjust, hedge, and sell stock is too broad.
It's a remarkably easy problem to solve. Just tax 1-3% of the net value of your assets based on their value on December 31 of each year.
> It honestly sounds like your statement here is actually a thin veil over just letting anyone making under $N exploit the system at (once again) the cost of the middle class.
The idea of a middle class here itself is a myth and deliberate propaganda by the wealthy to pit the imaginary middle class against the imaginary lower class. There are only really two classes: those who trade their labor for an income and those who own capital. This idea of "defending the middle class" is 100% propaganda.
You, as a software engineer, are in the same class as a neurosurgeon, a profesional basketball player, a waiter, a nurse or a teacher. I hope you realize that someday.
Fundamentally, this allows passing of property and family businesses without inheritance tax, but the IRS collects in the end if it ceases to be held within the family. (The sales without triggering are about one recipient buying out somebody else's share.) This should cover basically all cases where the inheritance tax is unfair, the threshold for inheritance tax on things not covered by this can be lowered.
Easily avoided by liquidating assets on Dec 30 and rebuying on Jan 1 (or Jan 30 to avoid wash sale if needed)
It would also have a nasty side effect, there would be many sellers and few buyers on Dec 30, so the market would crash every single year at EoY.
This creates a taxable event. If people want to realize gains at a much higher tax rate I'm fine with that.
Quiz time:
Capital gains is 0% for anything less than $40k, 20% for anything over than $400k, and 15% for everything in the middle. How much do you have to inherit for the total effective tax rate to be greater than 95%?
> In many states property taxes are reassessed upon property transfer in a will, so if your grandparents/parents had a really good property tax rate, you may end up paying so much tax that you can't afford to keep the house.
In most states, property taxes are reassessed frequently (once every low single digit years). The only state where property taxes aren't regularly reassessed appears to be California. And I'm highly unsympathetic when the argument boils down to "we bought this property 50 years ago and we couldn't afford taxes on it if it were assessed at market value."
> The only state where property taxes aren't regularly reassessed appears to be California.
Technically, property taxes are reassessed in California but because of Prop 13, passed in the 1970s, the increase cannot exceed 2% per year. With in inflation in the 70s and 80s, this was a massive boon to incumbent homeowners and their descendants (since that favorable tax rate can be inherited).
California is the poster child for this taxpayer-led cash grab but it's not the only one. New York for example has a very complicated property tax system with various caps that amount to much the same thing but nowhere near as extreme.
> ... highly unsympathetic when the argument boils down to "we bought this property 50 years ago and we couldn't afford taxes on it if it were assessed at market value."
It's actually worse than that. It's always couched in terms of kicking seniors out of their life long homes because they're on a fixed income even though the major beneficiaries are Disney and extremely wealthy people. Worse, property held in LLCs allow you to retain favorable tax treatment even when the LLC changes hands.
Disney has to be singled out here because the're still paying 1960s taxes on their land in Anaheim.
Back to seniors, it's such a ridiculous argument. For one, you can always treat different taxpayers differently and, for example, freeze propert taxes for seniors until they die. You don't need to give a massive tax benefit to Disney to do that.
Interestingly, a state like Texas handles this way better. Property taxes are deferred for seniors until they die. They're still accuring property tax debt but it doesn't hit their immediate incomes.
This gives people a choice: stay in their family home and pay taxes when the houses are inherited or downsize to save on taxes.
This has the added benefit of freeing up housing stock.
This sounds like an end-around to the word "theft" to me. This is stealing property. There is no other word for it.
> This has the added benefit of freeing up housing stock.
Theft is theft no matter how you call you it.
Over a decade ago I was complaining to my tax CPA. He replied, "No income, no income tax." I quit that week.
So everyone files below 100k and everyone is immune to audit.
I might go for that, but I am also receptive to the abolition of taxes.
Income tax takes my work effort like slavery.
I think you need to update your screed for the Trump era tax changes. There's no longer a tax on repatriated earnings (they're exempted from corporate income), and the previous funds held offshore were taxed as a one-time charge (optionally payable over 8 years). There's no longer a US tax reason to keep your offshore profits offshore.
> 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes;
Inheritance isn't a taxable event, but death is. The step-up in basis corresponds to being subject to the estate tax. When the estate tax expired, estates weren't subject to tax, but there was no step-up in basis; it was made retroactively optional to subject the estate to the estate tax and get a step-up in basis. Certainly, the federal estate tax has a pretty large deduction, but just because the effective tax rate for a lot of estates is zero, doesn't make it not a taxable event. Of course, raising the estate tax comes with a lot of bad PR about people's family farms and what not; any honest attempt to increase estate taxes needs to address that, perhaps with an installment plan/lien for illiquid property -- if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable
> 4. Tax stocks on market value every year just like we do with property.
The US government doesn't run a property tax. Maybe you want mark to market income taxation on stocks? That's possible, but you'd need to make capital losses refundable or at least add carry-back, or people who were invested into a crash are going to be pretty grumpy. Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either.
Yes and no. What you're saying is partially correct. For pre-TCJA deferred foreign income there was tax holiday (ie a one-time low rate), just as there was in 2004. This tax could be paid over 8 years as well (eg Apple is doing this).
For future income, repatriation is technically exempted from income but there is a minimum tax on income in tax havens that probably incentivizes companies in future to shift profits overseas. The more money you do this with the lower the effective tax rate you pay, as I understand it.
So, you will still have an incentive against repatriation because it reduces the effectiveness of your overall profit shifting.
So borrowing in the US to avoid repatriation is still relevant but less so thanks to both the lower corporate tax rate of 21%, the tax-hoiday rate still being higher than the cost of borrowing and repatriation still increasing overall tax rate. This is less relevant currently with higher interest rates, of course.
> ... if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable
I'm all for carving out palatable exceptions such as deferring tax liabiilities for seniors, not hitting heirs with an immediate tax bill and effectively amortizing tax liabilities over many years in the case of farms. Fine.
What I am against is giving massive tax breaks to the likes of Disney and truly wealthy California landholders because of seniors or family farms. You can separate these issues.
> ... capital losses refundable or at least add carry-back
Capital losses (both long and short term) can already be carried forward. What you're suggesting by a carry-back I assume means to apply a loss against a paper profit in a previous year. Fine with me.
> ... people who were invested into a crash are going to be pretty grumpy
We've already had this kind of problem with the AMT. I honestly don't know the current state of the AMT but in previous years (eg during the dot-com bust) we had paper who through exercising options and paying a lot of tax because of AMT then having no way to resolve that when the stock crashed. I'm fine with making sure this doesn't happen either.
> Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either.
I get this. We have numerous examples of deferring tax liabilities (eg until death, due to hardship) so this seems like an eminently solvable problem.
So even if they spend very little time or money on dealing with the EITC they end up doing a lot more audits.
[1] https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020...
Simplifying the tax code would solve a lot of these headaches plus remove the EITC errors/fraud cost of $10bn-20bn a year.
A simple and reasonable one-liner tax code can be something like: "all businesses and citizens pay 10% of their monthly revenue to fund a small efficient government and social institutions (education, health, firefighters, police, etc)."
I would think most people think of an audit as having to meet in person with an IRS representative going over their taxes.
The IRS has publicly stated on a number of occasions they do not go after the wealthy because they do not have the resources to win in the ensuing legal battles.
This leaves the poor and middle class as the only groups they can target.
Congress is working on boosting it [1].
It's the most obvious and should be the most bipartisan approach. It's introducing no new taxes, it's equitable, it improves revenue (which could allow you hypothetically cut taxes.) It drives me up the wall that this isn't just a fast, handshake and proceed bit of legislation.
Lol [1][2][3].
[1] https://www.washingtonpost.com/business/2021/07/07/irs-taxes...
[2] https://www.reuters.com/world/us/us-infrastructure-deal-teet...
[3] https://www.foxbusiness.com/politics/middle-class-americans-...
The Panama papers had enough data to chase tax cheats for decades.
The Panama paper resulted in zero.
Congress | House | Senate | Presidency | Status
101st (1989–1991) Democrats Democrats Republican (G.H.W. Bush) Divided
102nd (1991–1993) Democrats Democrats Republican (G.H.W. Bush) Divided
103rd (1993–1995) Democrats Democrats Democrat (Clinton) Unified
104th (1995–1997) Republicans Republicans Democrat (Clinton) Divided
105th (1997–1999) Republicans Republicans Democrat (Clinton) Divided
106th (1999–2001) Republicans Republicans Democrat (Clinton) Divided
107th (2001–2003) Republicans Republicans / Democrats Republican (G.W. Bush) Unified / Divided
108th (2003–2005) Republicans Republicans Republican (G.W. Bush) Unified
109th (2005–2007) Republicans Republicans Republican (G.W. Bush) Unified
110th (2007–2009) Democrats Democrats Republican (G.W. Bush) Divided
111th (2009–2011) Democrats Democrats Democrat (Obama) Unified
112th (2011–2013) Republicans Democrats Democrat (Obama) Divided
113th (2013–2015) Republicans Democrats Democrat (Obama) Divided
114th (2015–2017) Republicans Republicans Democrat (Obama) Divided
115th (2017–2019) Republicans Republicans Republican (Trump) Unified
116th (2019–2021) Democrats Republicans Republican (Trump) Divided
117th (2021-2023) Democrats Democrats Democrat (Biden) Unified
Please, lay off the partisanship.
https://www.cambridge.org/core/journals/perspectives-on-poli...
Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.
At the same time, when the democrats have held power they have typically not made efforts to fund the IRS because it conflicts with their agenda and because it is wildly unpopular with their base who think it means more taxes.
So while the results are the same with both parties, one party specifically uses the elimination of the IRS as a campaign rallying cry.
It's been kind of a game like abortion rights were until it was no longer a game. The both use it to raise campaign donations then do fuck all about it.
and please don't make me pull out all the Ted Cruz tweets
Yeah, if you're poor you're a lot more likely to be doing your taxes by hand and thus you have much more room to make a copied-the-number-wrong mistake. Hence a high rate of "audits" in lower incomes. There's also more room to misunderstand something and enter wrong numbers.
Separate them out based on whether it's just a letter kicked out by the computer and the taxpayer easily remedies whatever the computer was complaining about vs cases where the IRS is actually hunting for wrongdoing (say, unreported income from a cash-heavy small business.)
I do agree, however, they need to target those with more. It's a lot harder so they tend not to and that has become much more severe because the Republicans have been deliberately starving them, they don't have the resources to do much of any actual auditing, it's almost all just these-numbers-don't-agree letters from the computer.
that hasn't been my experience.
friends and family at poverty levels of income routinely buy TurboTax garbage or go to H&R Block or equivalents every year.
These options, while wasteful, are attractive to them because they're low-effort and they generally offer pay-with-refund financing options.
At the end of the day, the enforcement is there for one reason: to make sure everyone pays for the shared facilities of society. If you catch someone who was supposed to pay 250.000 or catch 1000 someones who all had 100 outstanding tax, wouldn't it make more sense to focus on the big fish first?
Of course, but the reason they don't is that the tax system is a psychological control mechanism disguised as "doing good" (I make that assertion by looking at the utter amount of careless, unaccountable waste in government despite the endless gaslighting about "muh roads").
Why? Because if you can keep the majority in the psychological bracket of being the property of their government (purely via suggestion), you guarantee some percentage of cash flows. The "big fish" are smart and financed well-enough to circumvent (legally, in many cases) the system, while the little fish are ripe for catch and require far less worms/fishing poles to track down.
This is why a flat tax rate with a floor is necessary. If you don't make above a certain amount per year (e.g., at or just above the poverty line), you don't pay any taxes. Everyone above that pays 10%. The government, as they should, adjusts their budget accordingly instead of treating citizens like an ATM. What the money gets spent on is transparent, itemized, and readily available for you, me, and everyone else. This would solve all of the unnecessary red tape and procedure, fearmongering, etc. And that's precisely why it will never happen.
I hope you mean 10% of the amount of the part of their income that's above the line, and not 10% of their total income. Otherwise, this would cause a horrible welfare cliff.
If the point of tax dollars is to fund some form of socialism (e.g., for the disabled or others who can't care for themselves), then allocate the majority of tax revenue to that and strip down the federal government to bare essentials (as it should be). Also offer tax credits to people who offer amounts above 10% for allocation to such costs.
There's plenty of ways to take care of others without letting it burn up in the hands of the unproductive class (edit: meaning the government, not people who can't care for themselves).
Had to double-check...what I said still stands. If people are retaining more of what they earn (nationally, not just on an individual basis), market dynamics should play out that costs are lower, too, meaning you're not chasing increasing prices all the time with the same money (if we were on a Bitcoin standard, that would be even more true as there'd be no means for manipulating the money supply).
"The rate at which taxpayers understate their tax liability increases monotonically with income and average adjustments are highest in the highest income decile" [1].
"Cheating" is a very loaded word to use here.
Increasing funding so the IRS can hire the proper staff to enforce tax-law across the board is the solution and it results in net revenue for the government. But the GOP consistently opposes these measures and is intent on hamstringing the IRS in its ability to audit higher-income households and businesses.
https://www.taxpolicycenter.org/briefing-book/why-do-low-inc...
The IRS correspondence audit process is structured to expend the least amount of resources to conduct the largest number of examinations – resulting in the lowest level of customer service to taxpayers having the greatest need for assistance.
The headline statistics gives the impression that the IRS spends proportionally more money and effort on auditing poor families. But sending out a letter is easy and cheap. I realize now that the total number of audits may not be a good proxy for cost and effort if not all audits involve an IRS agent coming to your house and trying to guess the value of your artwork.
Yes, in a sense it does. If you are auditing in order to catch under-reported income, it does make sense to look at lower income returns.
If someone who made $500,000 reported $20,000, their return would be found among those from the honest poor taxpayers, not among those from the rich.
Moreover, someone doing something that egregious is probably dumb enough to be easily busted by the audit processing, and the yield would be high.
Higher earners will have tax returns which are professionally prepared, and complex. Auditing them is going to be a more time consuming process requiring more expertise, and have a low probability of yielding anything.
Lessons learned:
1. Don't gamble or invest in stocks. 2. Always use a professional to do your taxes.
I was also informed never to sign a letter to agree. Fortunately I never did that.
How do you know how much taxable income someone has if you're unwilling to audit them?
> The bill itself says the new funding is not "intended to increase taxes on any taxpayer or small business with a taxable income below $400,000."
[0] https://www.cnn.com/2022/08/10/politics/yellen-new-irs-fundi...
I'd assume lower income folks take less time to audit than wealthy folks. I'd also assume there are more low income than high income people. My final assumption is that the IRS will start a new audit when they complete one, rather than just wait.
Imagine then two auditors, both selecting random tax returns. One pulls a wealthy return, the other pulls a low income return.
The person auditing the wealthy return spends two months working on theirs. The low income return is audited in a week. The auditor then pulls a second return, also low income. This one takes a week, so they pull another, also low income.
You can see the pattern here - it's not malicious (though it may be a systemic injustice), it's an outcome of statistics playing out in unintended ways.
Probably true.
But purely from a revenue perspective, I wonder if larger emphasis on the rich would pay better dividends? Over half the audits are for returns with incomes less than $25,000. Even if there's a problem, the amount of recoverable money is really low. Even though most of those are "correspondence audits" (done via letter instead of face-to-face) somebody still hast to review any new documentation.
They don’t audit people based on how much they will recover, they audit based on errors and patterns in returns.
Sadly, poor people have many errors and there’s a lot of mistakes and fraud with the earned income tax credit that is very valuable, especially for low income people.
Calculations should be done to determine the exact number, but 2.5% seems like a reasonable starting point.
If you have money you can pay to keep it by having someone well versed in the tax laws to find a loophole. If you have a lot of capital you can even then use that money to essentially buy a new loophole in the tax law.
Sad...but not surprising. Money buys everything in this age even laws and the people that govern them.
And if you think money can't buy political goodwill these days, I'm not sure what to tell you...
> A large increase in federal income tax audits targeting the poorest wage earners allowed the Internal Revenue Service to keep overall audit numbers from further declines for Americans as a whole during FY 2021.
I'm guessing low-income people are, for a bunch of reasons including having simpler finances and ~no ability to hire legal counsel or other outside help, way cheaper to audit than those with more money are.
This passage suggests they shifted focus there to keep their total-audits number from dropping even further. The IRS is experiencing a many-years-long deliberately-inflicted severe staffing shortage. IOW this was probably done to keep a metric someone cared about from dropping without requiring more funding, not because it's efficient or just or anything like that.
I might be missing something here, but are you disregarding the 80bn the IRS just got for another 87,000 auditors? Or are we talking funding for something else?
>person I'm replying to is talking about funding for auditing
>IRS says they're going to hire 87,000 more auditors
Gee I wonder what the results will be.
On the FY 2021 audit rate? Little or no effect, I expect.
The smart money says a government that's 24 trillion in debt, beholden to a private central bank that printed 16 trillion to keep alive a fake economy in the face of a flu, will probably up its FY 2021 audit rate.
I'll check back with you in a few years to see how I did ;)
So no, that's not what the "smart money" says. If the staff increase were 2x what's proposed, sure, maybe. As it is I expect them to mostly use those resources to make the chart in the article go up for FY 2022 and on, though I'll be surprised if they manage to reach 1990s levels of audit rates.
I think what's happened here is you got caught either misreading or deliberately ignoring parts of my post in order to bring up something that's bugging you and you wanted an excuse to post about, and instead of going "oops, my bad" you're digging in. So now you're trying to relate your thing back to 2021 so you can pretend it was ever relevant to the discussion. That's not making it look any better, incidentally.
Turn off your internet.
It's not got. (It passed the Senate on Sunday and is scheduled to be passed by the House tomorrow.)
Summary: - IRS used to have over 100,000 employees a decade back. This number has fallen due to funding cuts etc to less than 78,000 today.
- The employees are not just auditors - they are support people for tax filing, IT etc.
- There will be further employee attrition over the next decade that would need to be backfilled.
- What Congress has given them is funding to cover hiring of 87,000 employees over the next decade. This will cover backfill for employee attrition + new employees that will include auditors, enhanced support, IT etc. The total growth (again over the next decade) is expected to be 20-30,000 with will bring the IRS back to last decade levels.
TL;DR: IRS isn't going out and hiring 87,000 new (and in some misleading reports, gun toting) agents tomorrow and doubling their workforce. Instead, they are bringing their employee count (auditors and others) back to last decade levels and also replacing departing employees.
1. https://time.com/6204928/irs-87000-agents-factcheck-biden/
Is that why they posted this job description, and then deleted it?
https://web.archive.org/web/20220804060409/https://www.jobs....
Good luck in what's to come, friend. I hope you're ready :)
I can't imagine those are very expensive.
These federal agencies and their overreach go way beyond their scope. It is time to abolish these agencies.
I’m told in European countries that y’all have your taxes pre-calculated and sent to your homes? I’m flabbergasted that we don’t do the same.
It is because Intuit and other large tax preparers have lobbied heavily against anything that makes taxes easier to file.
> Internal presentations lay out company tactics for fighting “encroachment,” Intuit’s catchall term for any government initiative to make filing taxes easier — such as creating a free government filing system or pre-filling people’s returns with payroll or other data the IRS already has. “For a decade proposals have sought to create IRS tax software or a ReturnFree Tax System; All were stopped,” reads a confidential 2007 PowerPoint presentation from an Intuit board of directors meeting.
https://www.propublica.org/article/inside-turbotax-20-year-f...
Going from 2017 to 2018, the 1040 went from 79 lines [1] to 23 lines [2]. The remaining 50 or so lines? Moved to Schedules 1, 2, 3, 4, 5, and 6. So if your return had any amount of complexity, you probably needed more pages that year.
Today's Form 1040 [3] is somewhere in the middle. The form itself has 38 lines, and the numbered schedules have been consolidated from 6 to 3.
[1] https://www.irs.gov/pub/irs-prior/f1040--2017.pdf
But things get complicated in a hurry in the US. My taxes aren't unreasonably complicated with only maybe a couple things that aren't pretty routine. And I still end up with a 1" thick sheaf of paper between federal and state taxes from my accountant.
EDIT: why is this getting down voted?
I'm curious what the avg income level of your downvoters is... ;-)
With inflation, The 2023 population A is much larger. The idea of $400K/year being slated as a "minority of easy-to-dismissed wealthy" will be an important frame to keep alive as population A keeps growing due to inflation.
You'll end up getting tommorrow's money to paid for tommorrow's prices, however. And I'm pretty sure you won't like that. You never have, in fact.
Sure, inflation may increase the number of households earning $400k, but it's still a tiny minority of the population and will be for a long time.
You care about household income, not individual.
https://dqydj.com/income-by-city/ gives 95th, not 98th in SF Metro area for household income. 92nd in Silicon valley.
The politicos are already dancing around this saying how "middle class" people will not have an increased chance of audit.
The Secretary of the Treasury (not current one) was found to have misfiled his return. When asked, all he could say was he put the numbers into Turbo Tax, and this is what it spit out.
I have a family member who gets audited by the IRS every year. They've never found anything, but the harrassment continues year after year.
Once the IRS has these additional people, they will have to use them, and they will have to justify them.
Based on my experience, I’m not in favor of this expansion.
I believe the answer to TCMP audits is to have the IRS pay you an appreciable amount if no substantial issues come to light as they are an unreasonable burden to those who get selected.
This is factually incorrect in so many ways. Please vet your sources better.
https://www.forbes.com/sites/robertwood/2022/08/11/irs-to-ad...
The "87,000 agents” number is a partisan piece of talking point misinformation. The numer comes from this report: https://home.treasury.gov/system/files/136/The-American-Fami...
The number describes the total number of new employees that would be added over the next 10 years and most of that increase would happen over the second half of that period.
So no, there are not 87,000 new agents and neither the new IT personel nor the the new customer service personel will be carrying guns.
Yes this is a significant increase in IRS funding, but it happens on the heels of a decade of significant cuts to the IRS. It is impossible to have a proper discussion on this topic when it is dominated by people spreading misinformation.
Take the tin foil hat off and quit spreading this FUD.
https://news.yahoo.com/irs-requires-special-agents-carry-130...
They are not the majority of hires, and they are not the ones doing audits, and I'm guessing they will be a tiny, tiny fraction of any IRS expansion.
My office building when I worked for Boeing had an armed security guard, that does not mean that if Boeing expands by 10k jobs that suddenly there will be 10k more guns in the factory.
So yes, your original post is clearly out of phase with reality.