5 ms·

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-aud

by 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.

by khuey 6y ago

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.