4 ms·

I would suggest the opposite. IRS realizes the only revenue they're likely to extract correctly are small business owners, and middle to upper class who don't h

by czbond 6y ago

I would suggest the opposite. IRS realizes the only revenue they're likely to extract correctly are small business owners, and middle to upper class who don't have the time nor legal fee tolerance to fight it. They already extract so little on an |absolute value| basis from the lower 70% of Americans, that it only makes sense to focus on the top x%

jellicle 6y ago
It's great that you have feelings about what the IRS does, but the previous commenter was talking about facts and the IRS's own statements on the issue. The IRS was in the news last year for stating that they have decreased audits on the wealthy because they take too much effort. The most-audited zip codes in the USA are extremely poor areas.
- czbond 6y ago
  Yeah, Original statement was logic only. Followup was on how specific areas might be 'cash only' hotspots that diverge from the mean tax paid for occupations, revenue, or other criteria.
khuey 6y ago
And yet they audit 25% of those receiving the EITC (https://www.foxbusiness.com/money/irs-audits-poor-taxpayers-easier https://www.foxbusiness.com/money/irs-audits-poor-taxpayers-...) who are all poor.
- pc86 6y ago
  I hesitate to use this phrase but isn't it important to look at the "ROI" on those audits to determine if it's a good thing or not? Whether you're poor or not, you shouldn't be getting the EITC if you don't qualify for it. What does this subset of audits cost the IRS, and how much money is recovered from it? How does that compare to auditing someone who is high income but with a fairly straightforward W2, compared to someone with a lot of Schedule C and 1099 income? To be clear I don't think the only component of the "should we audit" formula should be expected ROI; there is also a (positive) chilling effect in general where the chance of a random audit should be just high enough to dissuade folks from fraud in the first place, but the penalties not so severe that someone is bankrupted from an honest mistake.
  - matwood 6y ago
    I wonder if the IRS even thinks about a monetary ROI. Given how often poorer people are audited, I'm guessing it's all about cases closed or numbers audited and has little to do with amounts. IMO, amounts would be the better focus.
- czbond 6y ago
  After reflection, my guess is it would be that in those neighborhoods they have identified a largely 'paid in cash, under-reported' behavior. For example, if nationally a person with "career x" makes $45k, yet reports $18k - it could be worth a look. There are large segments that do this (right or wrong) - and is one underlying benefit the govt believes of going all digital. I can see how from their standpoint focusing on cash audits of unsophisticated businesses setups are easier than complicated, diverse, experience heavy audits.
  - renewiltord 6y ago
    It feels a bit like you've assumed that what the IRS is doing is optimal and then working back from that to produce a theory for why they act this way. Considering it is a bureaucracy that is vulnerable to political machinations I don't think the assumption is necessarily valid.
    - czbond 6y ago
      My assumption is not empirically correct, I agree, but neither is the belief that IRS audits of mass populations is politically motivated. It is simply ease, right? Easier to audit where it is easy returns, or where one will get a high return (eg: high return of audit hours vs audit returns). Similar to how people often suggest police can 'issue more fines' for speeding (easy, high volume) than for difficult crimes requiring risk and time.
      - renewiltord 6y ago
        Right, I feel like the unspoken assumption is that we've created an environment where low-likelihood high-reward financial crimes are hard to prosecute and in that environment I find what you're saying easy to believe.
- throwaway0a5e 6y ago
  Because it's easy. It's like the IRS equivalent of writing speeding tickets to generate revenue. All they have to do is prove you made too much money. They go down a list of income types and see if you had it and how much. The man hour investment is tiny.
eli 6y ago
Interesting theory but the Treasury IG report shows the IRS doesn't even pursue hundreds of thousands of high-income individuals who do not file taxes at all. The top 1% of earners account for 70% of underreporting of income. https://www.treasury.gov/tigta/auditreports/2020reports/202030015fr.pdf https://www.treasury.gov/tigta/auditreports/2020reports/2020...
- czbond 6y ago
  Wow - that's nuts. Thanks for posting; And here I stress out to make sure the exact amount I owe is correctly reported. Oh well, better to sleep at night soundly on that issue!
  - eli 6y ago
    Same, I spend a lot of time trying to get it right. It’s incredibly frustrating that it is so politically unpopular to fund the IRS at an appropriate level even though each dollar spent would generate more than a dollar in tax revenue.
- vonmoltke 6y ago
  That report is very enlightening, and makes clear that the IRS is not doing their job WRT high-income non-filers. However, I don't see from its numbers how you arrived at > The top 1% of earners account for 70% of underreporting of income. since it only ever addresses non-filers and doesn't mention, from what I could see, percentile brackets for the filers it does discuss.

by czbond 6y ago

jellicle 6y ago

It's great that you have feelings about what the IRS does, but the previous commenter was talking about facts and the IRS's own statements on the issue. The IRS was in the news last year for stating that they have decreased audits on the wealthy because they take too much effort. The most-audited zip codes in the USA are extremely poor areas.

czbond 6y ago
Yeah, Original statement was logic only. Followup was on how specific areas might be 'cash only' hotspots that diverge from the mean tax paid for occupations, revenue, or other criteria.

khuey 6y ago

And yet they audit 25% of those receiving the EITC (https://www.foxbusiness.com/money/irs-audits-poor-taxpayers-easier https://www.foxbusiness.com/money/irs-audits-poor-taxpayers-...) who are all poor.

pc86 6y ago
I hesitate to use this phrase but isn't it important to look at the "ROI" on those audits to determine if it's a good thing or not? Whether you're poor or not, you shouldn't be getting the EITC if you don't qualify for it. What does this subset of audits cost the IRS, and how much money is recovered from it? How does that compare to auditing someone who is high income but with a fairly straightforward W2, compared to someone with a lot of Schedule C and 1099 income? To be clear I don't think the only component of the "should we audit" formula should be expected ROI; there is also a (positive) chilling effect in general where the chance of a random audit should be just high enough to dissuade folks from fraud in the first place, but the penalties not so severe that someone is bankrupted from an honest mistake.
- matwood 6y ago
  I wonder if the IRS even thinks about a monetary ROI. Given how often poorer people are audited, I'm guessing it's all about cases closed or numbers audited and has little to do with amounts. IMO, amounts would be the better focus.
czbond 6y ago
After reflection, my guess is it would be that in those neighborhoods they have identified a largely 'paid in cash, under-reported' behavior. For example, if nationally a person with "career x" makes $45k, yet reports $18k - it could be worth a look. There are large segments that do this (right or wrong) - and is one underlying benefit the govt believes of going all digital. I can see how from their standpoint focusing on cash audits of unsophisticated businesses setups are easier than complicated, diverse, experience heavy audits.
- renewiltord 6y ago
  It feels a bit like you've assumed that what the IRS is doing is optimal and then working back from that to produce a theory for why they act this way. Considering it is a bureaucracy that is vulnerable to political machinations I don't think the assumption is necessarily valid.
  - czbond 6y ago
    My assumption is not empirically correct, I agree, but neither is the belief that IRS audits of mass populations is politically motivated. It is simply ease, right? Easier to audit where it is easy returns, or where one will get a high return (eg: high return of audit hours vs audit returns). Similar to how people often suggest police can 'issue more fines' for speeding (easy, high volume) than for difficult crimes requiring risk and time.
    - renewiltord 6y ago
      Right, I feel like the unspoken assumption is that we've created an environment where low-likelihood high-reward financial crimes are hard to prosecute and in that environment I find what you're saying easy to believe.
throwaway0a5e 6y ago
Because it's easy. It's like the IRS equivalent of writing speeding tickets to generate revenue. All they have to do is prove you made too much money. They go down a list of income types and see if you had it and how much. The man hour investment is tiny.

eli 6y ago

Interesting theory but the Treasury IG report shows the IRS doesn't even pursue hundreds of thousands of high-income individuals who do not file taxes at all. The top 1% of earners account for 70% of underreporting of income. https://www.treasury.gov/tigta/auditreports/2020reports/202030015fr.pdf https://www.treasury.gov/tigta/auditreports/2020reports/2020...

czbond 6y ago
Wow - that's nuts. Thanks for posting; And here I stress out to make sure the exact amount I owe is correctly reported. Oh well, better to sleep at night soundly on that issue!
- eli 6y ago
  Same, I spend a lot of time trying to get it right. It’s incredibly frustrating that it is so politically unpopular to fund the IRS at an appropriate level even though each dollar spent would generate more than a dollar in tax revenue.
vonmoltke 6y ago
That report is very enlightening, and makes clear that the IRS is not doing their job WRT high-income non-filers. However, I don't see from its numbers how you arrived at > The top 1% of earners account for 70% of underreporting of income. since it only ever addresses non-filers and doesn't mention, from what I could see, percentile brackets for the filers it does discuss.