Saturday, October 19, 2019

IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor

This has been always true and such audits can also be easily done as well.  Add in that there are way more potentially easy audits when you also include the simply well to do.  After all, until you are in the top third of earners, you have little incentive to hire expensive accounting advice.

Obviously the same hold true for top earners as well.

Something else though, a top earner pays for correct accounting work. No accountant is big on defrauding the IRS.  Thus the top earners do pay the correct taxes as a matter of course.  In fact paying your taxes then frees up the balance from any other form of attachment and gives you a free hand.

Where the real legitimate problem lies is in accepted policy.  Exceptions and loopholes are created for legitimate reasons but they also open the door to aggressive tax planning until the IRS cracks down and ends this game.

What is needed instead is a small team able to spot developing exceptions and not so much act against them but to report early as this is often a case of unintended consequences from originally good intentions that will naturally trigger correction from the original sponsors....

IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor 

Congress asked the IRS to report on why it audits the poor more than the affluent. Its response is that it doesn’t have enough money and people to audit the wealthy properly. So it’s not going to.

by Paul Kiel Oct. 2, 2:47 p.m. EDT 

IRS Commissioner Charles Rettig at the Capitol on May 15, 2019, in Washington. Rettig says increasing audit rates of the wealthy depends on whether the IRS budget grows. (Anna Moneymaker/Getty Images) 

Who Wins When a Crucial Agency Is Defunded

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The IRS audits the working poor at about the same rate as the wealthiest 1%. Now, in response to questions from a U.S. senator, the IRS has acknowledged that’s true but professes it can’t change anything unless it is given more money.

ProPublica reported the disproportionate audit focus on lower-income families in April. Lawmakers confronted IRS Commissioner Charles Rettig about the emphasis, citing our stories, and Sen. Ron Wyden, D-Ore., asked Rettig for a plan to fix the imbalance. Rettig readily agreed.

Last month, Rettig replied with a report, but it said the IRS has no plan and won’t have one until Congress agrees to restore the funding it slashed from the agency over the past nine years — something lawmakers have shown little inclination to do.

On the one hand, the IRS said, auditing poor taxpayers is a lot easier: The agency uses relatively low-level employees to audit returns for low-income taxpayers who claim the earned income tax credit. The audits — of which there were about 380,000 last year, accounting for 39% of the total the IRS conducted — are done by mail and don’t take too much staff time, either. They are “the most efficient use of available IRS examination resources,” Rettig’s report says.

On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard.

For now, the IRS says, while it agrees auditing more wealthy taxpayers would be a good idea, without adequate funding there’s nothing it can do. “Congress must fund and the IRS must hire and train appropriate numbers of [auditors] to have appropriately balanced coverage across all income levels,” the report said.

Since 2011, Republicans in Congress have driven cuts to the IRS enforcement budget; it’s more than a quarter lower than its 2010 level, adjusting for inflation.

Recently, bipartisan support has emerged in both the House and Senate for increasing enforcement spending, but the proposals on the table are relatively modest and would not restore the budget to pre-cut levels. However, even a proposed small increase might not come to pass, because it’s unclear whether Congress will actually pass any appropriations bills this year.

In response to Rettig’s letter, Wyden agreed in a statement that the IRS needs more money, “but that does not eliminate the need for the agency to begin reversing the alarming trend of plummeting audit rates of the wealthy within its current budget.”

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