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> Also unmentioned is the very real negative externalities that IRS audits cause. Audits disproportionately affect poor people [2], who are also the least able
by chris11 7y ago
> Also unmentioned is the very real negative externalities that IRS audits cause. Audits disproportionately affect poor people [2], who are also the least able to spend time dealing with them. The United States already has extremely low tax evasion rates [3]. Rather than spending money to catch more of the very few cheaters by audits, other country's tax authorities have found "nudge" letters were found to be similarly effective and vastly cheaper.
That's not a strong argument against audits. I'd just take that to mean the IRS should mainly audit people or businesses based by how large the underreporting was.
- gok 7y agoAudit based on size of underreporting? That's like saying only buy winning lottery tickets. You don't know how accurate a tax filing is up front; that's why there are audits.
- chris11 7y agoThat was worded a little badly. The size of the company, and the size of the tax return should impact the chance of an audit. Intentionally lying on your tax return and saving 5% is a lot different with 100 million than with 10,000. The IRS should also prioritize audits that look fraudulent.
- londons_explore 7y agoThe mandate of the IRS should not be to maximize tax collection, but to maximize economic gain to the United States. I hope their internal models take into account the cost of an audit which finds nothing, both to the IRS themselves, but also to the audited and their family. In fact, to make incentives align, maybe they should even pay those who are audited and end up owing nothing.