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Except people with a lot of money can afford a team of lawyers and accountants to grapple with the IRS. Middle income people can't afford to fight back. The pat

Except people with a lot of money can afford a team of lawyers and accountants to grapple with the IRS. Middle income people can't afford to fight back. The path of least resistance is to ignore the big fish and just catch as many small fish as you can.

vmception 5y ago
> Grapple I think this completely mischaracterizes the relationship that wealthy participants have with the IRS. Factor in these two things: 1) The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people. Very many interactions with the IRS are pre-emptive as well as collaborative. The poorer experience is completely retroactive enforcement with the tax authority seemingly already having made a conclusion about what you owe at the worst time for you to come up with that money. Very big difference in experiences. 2) Lawyers and accountants know the law better than the IRS. Yes, “fighting back” can be an accurate term, but its more accurate to say “respond” at all. On the wealthier side, it is rare that an interpretation devolves into an adversarial relationship. The IRS is motivated by having a clear lineage of funds and rationale, as opposed to actually optimizing revenues via taxes.
- aaron-santos 5y ago
  >The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people. The working class gets audit mail, while the capitalist class get to talk face to face. It is the privilege of talking it over. If you can take just a moment to view the IRS as a customer support line, the rich get to talk with a real human.
  - vmception 5y ago
    But as I mentioned, its not adversarial to begin with. Most tax compliance - although much more obscure and less used - is telling the IRS in advance how little you will pay. From an 83(b) election on an arbitrarily short vesting schedule you made for yourself for discounted assets, to Advance Pricing Agreements which you pay for, to Private Letter Rulings, to tax-exempt status for your non-profits. It just isn't the same experience with that agency.
    - aaron-santos 5y ago
      I don't think I'm in disagreement, but maybe you can tell me. The popular portrayal that a face to face meeting with the IRS is the worst needs to be debunked. Anyone who thinks a face to face meeting with a TCO needs to keep in mind who is getting face to face examinations and what that implies. It's much more cordial than the adversarial mailers that the prole gets.
      - vmception 5y ago
        We're mostly just talking about different things. Yeah audits are not the end of the world, and every transaction that was filed needs to already be rationalized for how it would be explained in an audit. I've been talking about all the interactions one can have with the IRS before taxes are ever filed.
        aaron-santos 5y ago
        Thank you for taking the time to explain that a bit more. Yes we're talking about two different things.
  - NovemberWhiskey 5y ago
    I see where you're coming from; but isn't it more the case that the kind of audit you get depends on the kind of error/fraud you have in your return? My understanding is that the majority of "working class" audits are around tax credits and that the IRS knows to a moral certainty that there's a problem due to internal inconsistencies in the filing itself.
    - vmception 5y ago
      Chiming in on this, its mostly correct, but not a key distinction as wealthy market participants have many tax credits as well. EITC (Earned Income Tax Credit) is the majority of their enforcement though, according to IRS agents. The IRS uses a social graph which affects the working class more than others. Basically, if you get paid by someone and that someone deducts the payment on their taxes, the IRS is looking for the recipient (you) to see if the IRS was paid by the recipient to make up for the deduction. So this is done with W-2 employment and 1099 payments. This affects individuals more so because there is no clear guidance on whether 1099 filings are necessary for payments to LLCs and other entities, and there likely never will be. LLC's are not expensive or exclusively the domain of the wealthy, but in practice they are, and the opportunities available to a contractor to act as an individual versus in a corp-to-corp payment situation are pretty heavily correlated to the value of the contract. Just one of many examples of the different experience.
    - aaron-santos 5y ago
      Class is a determiner of the type of fraud, and the type of fraud determines the auditing procedure. Working class people commit fraud related to EITC, child tax credit, American opportunities tax credit, and medical expenses. Capital class tax fraud covers pensions, annuities, rents, fellowships, scholarships, royalties, business expenses, bad debt deduction, property, and capital gains. Those who commit the first types of fraud get one treatment while those who commit the second types of fraud get another. The end result is that working class people get treated by the IRS in one way and capitalist class people get treated another.

vmception 5y ago

> Grapple I think this completely mischaracterizes the relationship that wealthy participants have with the IRS. Factor in these two things: 1) The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people. Very many interactions with the IRS are pre-emptive as well as collaborative. The poorer experience is completely retroactive enforcement with the tax authority seemingly already having made a conclusion about what you owe at the worst time for you to come up with that money. Very big difference in experiences. 2) Lawyers and accountants know the law better than the IRS. Yes, “fighting back” can be an accurate term, but its more accurate to say “respond” at all. On the wealthier side, it is rare that an interpretation devolves into an adversarial relationship. The IRS is motivated by having a clear lineage of funds and rationale, as opposed to actually optimizing revenues via taxes.

aaron-santos 5y ago
>The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people. The working class gets audit mail, while the capitalist class get to talk face to face. It is the privilege of talking it over. If you can take just a moment to view the IRS as a customer support line, the rich get to talk with a real human.
- vmception 5y ago
  But as I mentioned, its not adversarial to begin with. Most tax compliance - although much more obscure and less used - is telling the IRS in advance how little you will pay. From an 83(b) election on an arbitrarily short vesting schedule you made for yourself for discounted assets, to Advance Pricing Agreements which you pay for, to Private Letter Rulings, to tax-exempt status for your non-profits. It just isn't the same experience with that agency.
  - aaron-santos 5y ago
    I don't think I'm in disagreement, but maybe you can tell me. The popular portrayal that a face to face meeting with the IRS is the worst needs to be debunked. Anyone who thinks a face to face meeting with a TCO needs to keep in mind who is getting face to face examinations and what that implies. It's much more cordial than the adversarial mailers that the prole gets.
    - vmception 5y ago
      We're mostly just talking about different things. Yeah audits are not the end of the world, and every transaction that was filed needs to already be rationalized for how it would be explained in an audit. I've been talking about all the interactions one can have with the IRS before taxes are ever filed.
      - aaron-santos 5y ago
        Thank you for taking the time to explain that a bit more. Yes we're talking about two different things.
- NovemberWhiskey 5y ago
  I see where you're coming from; but isn't it more the case that the kind of audit you get depends on the kind of error/fraud you have in your return? My understanding is that the majority of "working class" audits are around tax credits and that the IRS knows to a moral certainty that there's a problem due to internal inconsistencies in the filing itself.
  - vmception 5y ago
    Chiming in on this, its mostly correct, but not a key distinction as wealthy market participants have many tax credits as well. EITC (Earned Income Tax Credit) is the majority of their enforcement though, according to IRS agents. The IRS uses a social graph which affects the working class more than others. Basically, if you get paid by someone and that someone deducts the payment on their taxes, the IRS is looking for the recipient (you) to see if the IRS was paid by the recipient to make up for the deduction. So this is done with W-2 employment and 1099 payments. This affects individuals more so because there is no clear guidance on whether 1099 filings are necessary for payments to LLCs and other entities, and there likely never will be. LLC's are not expensive or exclusively the domain of the wealthy, but in practice they are, and the opportunities available to a contractor to act as an individual versus in a corp-to-corp payment situation are pretty heavily correlated to the value of the contract. Just one of many examples of the different experience.
  - aaron-santos 5y ago
    Class is a determiner of the type of fraud, and the type of fraud determines the auditing procedure. Working class people commit fraud related to EITC, child tax credit, American opportunities tax credit, and medical expenses. Capital class tax fraud covers pensions, annuities, rents, fellowships, scholarships, royalties, business expenses, bad debt deduction, property, and capital gains. Those who commit the first types of fraud get one treatment while those who commit the second types of fraud get another. The end result is that working class people get treated by the IRS in one way and capitalist class people get treated another.