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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 unders

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

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.