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IRS audits poorest families at five times the rate for everyone else

260 points by heavyset_go 4y ago

josephcsible 4y ago
There's one statistic that I didn't see but I'm now really curious about: what percentage of audits discover irregularities, per income level? If lower-income people are more likely than average to cheat on their taxes, then it makes sense to audit them more, but if they don't, then this is indeed totally unfair.
- kevinventullo 4y ago
  Also, the whole point is that they may in fact not be as low income as they claim!
  - Scoundreller 4y ago
    Would make more sense if they looked at IRS audit rates by zip code.
- SubiculumCode 4y ago
  I'd guess that audits of the poor finds *less* but can be completed swiftly; if there is any quotas requiring X audits/month of IRS accountants, are you going to choose the 1040EZ or the tax filing with 50+ pages of mumbojumbo?
- oneplane 4y ago
  If we were to try to assess fairness, wouldn't it make sense to also take effects and side-effects into account? Say a disproportionate amount of poor families cheat, but also end up on the street after an audit, either not able to pay any outstanding taxes, or having paid them and no longer being able to afford a roof over their head. At the same time, while breaking the law should be the same for everyone else, wouldn't it also be more fair for small time violators to be treated less harsh, for example not having paid 100 dollars in tax vs. not having paid 1M. At the end of the day, the enforcement is there for one reason: to make sure everyone pays for the shared facilities of society. If you catch someone who was supposed to pay 250.000 or catch 1000 someones who all had 100 outstanding tax, wouldn't it make more sense to focus on the big fish first?
  - josephcsible 4y ago
    There's a big difference between acknowledging that you owe taxes but not paying them, and lying that you don't owe taxes when you really do. I can only sympathize with people who do the former, and these audits are all about catching the latter.
    - singlow 4y ago
      The audits also catch a lot of cases where people don't know how to file anything beyond their basic employer withholdings. If a poorer, less educated person gets a 1099 for a side job or does an early withdrawal from their IRA, they are likely to fail to report it properly, or pay the required taxes. This is not usually intentional, they just don't know better. Even if they know they have to pay taxes on the money, they don't realize that the IRS didn't already take their cut just like they do from a paycheck.
      - googlryas 4y ago
        True, and the IRS is fairly reasonable about understanding when something is intentional or unintentional when levying fines and setting out payment plans.
  - rglover 4y ago
    > wouldn't it make more sense to focus on the big fish first? Of course, but the reason they don't is that the tax system is a psychological control mechanism disguised as "doing good" (I make that assertion by looking at the utter amount of careless, unaccountable waste in government despite the endless gaslighting about "muh roads"). Why? Because if you can keep the majority in the psychological bracket of being the property of their government (purely via suggestion), you guarantee some percentage of cash flows. The "big fish" are smart and financed well-enough to circumvent (legally, in many cases) the system, while the little fish are ripe for catch and require far less worms/fishing poles to track down. This is why a flat tax rate with a floor is necessary. If you don't make above a certain amount per year (e.g., at or just above the poverty line), you don't pay any taxes. Everyone above that pays 10%. The government, as they should, adjusts their budget accordingly instead of treating citizens like an ATM. What the money gets spent on is transparent, itemized, and readily available for you, me, and everyone else. This would solve all of the unnecessary red tape and procedure, fearmongering, etc. And that's precisely why it will never happen.
- nonameiguess 4y ago
  Not sure that really follows. Is the goal of the audit to punish the maximum number of people or recover the maximum amount of money? If the latter, then it doesn't make much sense to spend most of your effort assessing $400 penalties.
  - s1artibartfast 4y ago
    That depends on the ROI. If it costs a fraction of a penny to write a code that catches hundreds of thousands of $400 errors, the ROI is pretty good
- offsign_p 4y ago
  Exactly. Study makes a huge assumption that low earned income means the recipient is poor. Investment only income isn't "earned" income, unreported income isn't earned income -- both are probably good targets audits.
- deleted 4y ago
  [deleted]
- JumpCrisscross 4y ago
  > what percentage of audits discover irregularities, per income level? "The rate at which taxpayers understate their tax liability increases monotonically with income and average adjustments are highest in the highest income decile" [1]. [1] https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204 https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204
- llbeansandrice 4y ago
  They're not cheating. It's because the EITC is complex so it's easy to make mistakes. Also because the IRS doesn't have the proper staffing to actually go after people that are richer and file yet more complex tax returns. "Cheating" is a very loaded word to use here. Increasing funding so the IRS can hire the proper staff to enforce tax-law across the board is the solution and it results in net revenue for the government. But the GOP consistently opposes these measures and is intent on hamstringing the IRS in its ability to audit higher-income households and businesses.
  - LorenPechtel 4y ago
    This. A large percentage of "audits" of the middle class and below are oopses, not cheating.
PsySecGroup 4y ago
Curious timing given the expansion of the IRS. EDIT: why is this getting down voted?
- inanutshellus 4y ago
  If I were wealthy enough to be /actually/ affected by the IRS expansion (400k+/yr) it would be a wise investment to spread articles like this to make sure The People are as against the IRS expansion as possible. I'm curious what the avg income level of your downvoters is... ;-)
  - PsySecGroup 4y ago
    A 2022 $400K/year threshold hits population A. With inflation, The 2023 population A is much larger. The idea of $400K/year being slated as a "minority of easy-to-dismissed wealthy" will be an important frame to keep alive as population A keeps growing due to inflation.
    - throwaway5959 4y ago
      I’d happily pay more taxes if I could wake up tomorrow making $400k/year in 2023 dollars.
      - PsySecGroup 4y ago
        If want tommorrow's money to pay today's prices, start managing wealth. You'll end up getting tommorrow's money to paid for tommorrow's prices, however. And I'm pretty sure you won't like that. You never have, in fact.
      - washbrain 4y ago
        I make more than $400k, and my tax bill is criminally low.
    - alistairSH 4y ago
      $400k is a 98% percentile income in San Francisco metro, DC metro, and NYC metro. Sure, inflation may increase the number of households earning $400k, but it's still a tiny minority of the population and will be for a long time.
pilgrimfff 4y ago
This just doesn’t make sense from a financial standpoint. It seems doubtful the money recovered covers the cost of the audits.
- throwaway292939 4y ago
  Perhaps the idea of audits would discourage people from committing fraud in the first place.. so it may make sense
- trebbble 4y ago
  From the article: > A large increase in federal income tax audits targeting the poorest wage earners allowed the Internal Revenue Service to keep overall audit numbers from further declines for Americans as a whole during FY 2021. I'm guessing low-income people are, for a bunch of reasons including having simpler finances and ~no ability to hire legal counsel or other outside help, way cheaper to audit than those with more money are. This passage suggests they shifted focus there to keep their total-audits number from dropping even further. The IRS is experiencing a many-years-long deliberately-inflicted severe staffing shortage. IOW this was probably done to keep a metric someone cared about from dropping without requiring more funding, not because it's efficient or just or anything like that.
  - albatross13 4y ago
    >without requiring more funding I might be missing something here, but are you disregarding the 80bn the IRS just got for another 87,000 auditors? Or are we talking funding for something else?
    - shkkmo 4y ago
      That is funding that has just been allocated, the results of that funding obviously won't be seen in data that predates that funding..
      - albatross13 4y ago
graton 4y ago
As the article states the "audits" are for the most part (~85% of the time) a letter sent to the person asking them to provide documentation for something. I would think most people think of an audit as having to meet in person with an IRS representative going over their taxes.
- jwarden 4y ago
  The author of the article asks "Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us?" But he has only established that the IRS sends more of these letters to the (self-reported) poorest taxpayers, and not that they actually spend more of their limited firepower on them.
- tpmx 4y ago
  - washbrain 4y ago
    Wait what? What about defining "correspondence audits" is political?
    - throwaway5959 4y ago
      For some people, it’s easier to ask them what isn’t political than what is. Once you realize that, their constant strife makes a lot more sense.
      - washbrain 4y ago
        I mean, I'm a Marxist and I think lots of stuff is political, but even I can't figure out what that poster was trying to say.
  - raunak 4y ago
    I think you have that backwards buddy.
jwarden 4y ago
I think this statistic may be misleading. The article states that most of these are "correspondence audits", described as "essentially a letter from the IRS asking for documentation on a specific line item on a return." The headline statistics gives the impression that the IRS spends proportionally more money and effort on auditing poor families. But sending out a letter is easy and cheap. I realize now that the total number of audits may not be a good proxy for cost and effort if not all audits involve an IRS agent coming to your house and trying to guess the value of your artwork.
NovemberWhiskey 4y ago
The reason for this is almost entirely the Earned Income Tax Credit. The IRS estimates 21-26% of all EITC claims are improper. The rules are quite complex, which results in more errors and it is relatively straightforward for the IRS to detect certain classes of mistake or fraud through automation (i.e. to detect if the same child was claimed as a dependent by two different people on their return). Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that?
- moomin 4y ago
  They ignore much larger sums. The real reason they’re targeted is that, quite simply, they’re unable to fight back. It’s the equivalent of searching for your keys under the streetlight.
  - AnimalMuppet 4y ago
    > They ignore much larger sums. Source? What category of stuff the IRS ignores adds up to more than $20 billion?
    - moralestapia 4y ago
      Bit of a tangent but, why $20BUSD?
      - thrdbndndn 4y ago
        >EITC errors/fraud cost the public purse $10-20bn a year
        moralestapia 4y ago
        Oh that's right, my mind wandered a bit :l
      - NovemberWhiskey 4y ago
        $20bn is the estimated annual cost of fraudulent or otherwise improper Earned Income Tax Credits, which is the primary audit scope for low-income tax payers.
mannykannot 4y ago
This may explain why (it is from the National Taxpayer Advocate Erin M. Collins' annual report to congress): The IRS correspondence audit process is structured to expend the least amount of resources to conduct the largest number of examinations – resulting in the lowest level of customer service to taxpayers having the greatest need for assistance.
- alex_young 4y ago
  Isn’t that kind of the wrong way to structure resources? I could see making a case for either random auditing or for focusing on the largest possible sources of financial error, which surely would trend towards higher income level households.
  - s1artibartfast 4y ago
    Not if you can automate detection for simple errors that are largely made by the poor
  - mannykannot 4y ago
    I suspect it is a rational way for IRS staff to respond to a simplistic and apparently harmful performance mandate.
- enterthematrix 4y ago
  The thing is that's not designed to get the most amount of dollars - which is pretty moronic. This is just measuring the wrong thing. We should do the least work to get the most dollars.
shemnon42 4y ago
Is this really a fallout that the poorest families are more than five times more likely to do their own taxes instead of hiring a tax professional? Most audits are to account for sloppy bookkeeping or not attaching the correct documentation, not uncovering tax fraud schemes. (but many good tax fraud schemes look like bad bookkeeping, to be fair).
- washbrain 4y ago
  Another way it's extremely expensive to be poor.
- NovemberWhiskey 4y ago
  I couldn't find a more recent statistic; but lower incomes families are actually not much less likely to use a tax preparer than higher income families: https://www.taxpolicycenter.org/briefing-book/why-do-low-income-families-use-tax-preparers https://www.taxpolicycenter.org/briefing-book/why-do-low-inc...
washbrain 4y ago
This seems to have a statistical backing to me: I'd assume lower income folks take less time to audit than wealthy folks. I'd also assume there are more low income than high income people. My final assumption is that the IRS will start a new audit when they complete one, rather than just wait. Imagine then two auditors, both selecting random tax returns. One pulls a wealthy return, the other pulls a low income return. The person auditing the wealthy return spends two months working on theirs. The low income return is audited in a week. The auditor then pulls a second return, also low income. This one takes a week, so they pull another, also low income. You can see the pattern here - it's not malicious (though it may be a systemic injustice), it's an outcome of statistics playing out in unintended ways.
- alistairSH 4y ago
  You can see the pattern here - it's not malicious (though it may be a systemic injustice), it's an outcome of statistics playing out in unintended ways. Probably true. But purely from a revenue perspective, I wonder if larger emphasis on the rich would pay better dividends? Over half the audits are for returns with incomes less than $25,000. Even if there's a problem, the amount of recoverable money is really low. Even though most of those are "correspondence audits" (done via letter instead of face-to-face) somebody still hast to review any new documentation.
  - washbrain 4y ago
    Oh, I totally agree with you. Random sampling is the wrong approach. There should be weighted random sampling by income.
xhkkffbf 4y ago
Inflation hits the poorest the most. And this new explosion in IRS attention is going to hit them too. I'm not sure why people think this is targeting the rich.
- pessimizer 4y ago
  Inflation is hitting the employed poorest the least, because they've had a recent pay raise. It's hitting the unemployed and the dependent hard, and hitting severely overborrowing and overextended middle-class people hard (and if their house prices go down again, they're in real trouble.)
jimbob45 4y ago
There was talk during the Trump administration of bringing the tax code in line such that it could “fit on a large postcard” or something like that. That went out the window for the final bill. I have to imagine that tax simplification would provide as much benefit to revenue as boosting audit counts. I’m told in European countries that y’all have your taxes pre-calculated and sent to your homes? I’m flabbergasted that we don’t do the same.
- shkkmo 4y ago
  > I’m flabbergasted that we don’t do the same. It is because Intuit and other large tax preparers have lobbied heavily against anything that makes taxes easier to file.
  - missedthecue 4y ago
    How are you sure it's because of that?
    - washbrain 4y ago
      It's widely reported and widely understood that lobbying has specifically killed bills that have been introduced to simplify tax prep.
    - shkkmo 4y ago
      From Intuit's own files: > Internal presentations lay out company tactics for fighting “encroachment,” Intuit’s catchall term for any government initiative to make filing taxes easier — such as creating a free government filing system or pre-filling people’s returns with payroll or other data the IRS already has. “For a decade proposals have sought to create IRS tax software or a ReturnFree Tax System; All were stopped,” reads a confidential 2007 PowerPoint presentation from an Intuit board of directors meeting. https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free https://www.propublica.org/article/inside-turbotax-20-year-f...
    - mrguyorama 4y ago
singlow 4y ago
Wealthier people are much more likely to use a professional tax consultant or are better at knowing how to file. Audits are usually triggered by mistakes. Say the IRS gets a 1099 form that wasn't included in the return, which triggers an investigation. A wealthier person is much more likely to have filed the 1099 because they are more educated and/or can afford a tax professional. A poorer person is much more likely to just ignore the 1099 or not even know that it needs to be filed.
jeffwask 4y ago
The budget for the IRS has been continually slashed since Reagan despite all research on the subject showing increasing funding to the IRS funding increased revenue well beyond it's cost. The IRS has publicly stated on a number of occasions they do not go after the wealthy because they do not have the resources to win in the ensuing legal battles. This leaves the poor and middle class as the only groups they can target.
- JumpCrisscross 4y ago
  > budget for the IRS has been continually slashed since Reagan Congress is working on boosting it [1]. [1] https://crsreports.congress.gov/product/pdf/IN/IN11977 https://crsreports.congress.gov/product/pdf/IN/IN11977
- washbrain 4y ago
  This is 100% the story. The IRS can help make sure everyone is playing fair if we sufficiently fund them. And they can stop policing all the little issues and go after the big ones if we sufficiently fund them. AND sufficiently funding them is expected to increase tax revenue above the cost of funding them. It's the most obvious and should be the most bipartisan approach. It's introducing no new taxes, it's equitable, it improves revenue (which could allow you hypothetically cut taxes.) It drives me up the wall that this isn't just a fast, handshake and proceed bit of legislation.
  - SirSourdough 4y ago
    It effectively introduces new taxes for the powerful people currently getting away with dodging them, which should be a pretty clear indication of why we aren’t seeing stronger support.
  - JumpCrisscross 4y ago
    > should be the most bipartisan approach Lol [1][2][3]. [1] https://www.washingtonpost.com/business/2021/07/07/irs-taxes-budget-conservatives/ https://www.washingtonpost.com/business/2021/07/07/irs-taxes... [2] https://www.reuters.com/world/us/us-infrastructure-deal-teeters-after-republicans-reject-irs-funds-2021-07-20/ https://www.reuters.com/world/us/us-infrastructure-deal-teet... [3] https://www.foxbusiness.com/politics/middle-class-americans-bear-brunt-irs-audits-analysis-shows https://www.foxbusiness.com/politics/middle-class-americans-...
tomohawk 4y ago
And we're now going to get 87,000 more auditors. This is the largest increase in the federal police force (they are all armed) ever. The politicos are already dancing around this saying how "middle class" people will not have an increased chance of audit.
- enterthematrix 4y ago
  Fundamentally if you just pay your taxes, you shouldn't be audited (ideally.) That being said... an increase in auditors is net good because then the IRS can actually audit some of the massive number of tax crimes that occur. This is good.
  - oaththrowaway 4y ago
    Less good for your pets
  - tomohawk 4y ago
    The tax code is incredibly complex, which means unless your tax filing is trivial, you likely have misfiled. The Secretary of the Treasury (not current one) was found to have misfiled his return. When asked, all he could say was he put the numbers into Turbo Tax, and this is what it spit out. I have a family member who gets audited by the IRS every year. They've never found anything, but the harrassment continues year after year. Once the IRS has these additional people, they will have to use them, and they will have to justify them.
  - sokoloff 4y ago
    I was the unfortunate subject of a TCMP/NRP audit. Even with no tax issues identified in the audit, this took over $2K in my representation costs, ran over a year in calendar time, and seemed to exhibit no concern for the wastefulness on either party’s time and money. This was a fairly simple W-2, 1099-B, 401(k) couple of regular workers with a couple kids return. Based on my experience, I’m not in favor of this expansion.
    - LorenPechtel 4y ago
cosmiccatnap 4y ago
Capital is a cascading problem of inequality. If you have money you can pay to keep it by having someone well versed in the tax laws to find a loophole. If you have a lot of capital you can even then use that money to essentially buy a new loophole in the tax law. Sad...but not surprising. Money buys everything in this age even laws and the people that govern them.
- washbrain 4y ago
  Surprising to see this downvoted. The OP is saying, "the wealthy have more resources to protect their wealth from audits." Which, like, is objectively true? And if you think money can't buy political goodwill these days, I'm not sure what to tell you...
Invictus0 4y ago
If the IRS randomly selected returns to examine, I would expect the poor to be samples more than everyone else because that is the largest category. Likewise if the IRS is sending automated letters to anyone that improperly claimed a credit commonly claimed by the poor, then I would expect that to disproportionately affect the poor. Sending an automated letter is hardly comparable to a real audit in any case. Without more context I don't think this can be deemed a scandal.
- njbooher 4y ago
  Incidence of audits per 1000 returns filed by poor people is (13.0/2.6)=5x the incidence of audits per 1000 returns filed by non-poor people.
ohiovr 4y ago
Free tax preparation services are vastly inferior to a personal service. I got audited because I did some stock market gambling and my return only showed the loss and gain for everything and not for every stock traded. So the IRS sent me a letter that my income was in the tens of thousands of dollars because every instrument sold was assumed to be of no cost to acquire making it 100% capital gains. When TD ameritrade reported my trades they did not report the cost basis to them. So I got a letter saying I owed thousands in taxes with no indication in there that I should see a tax prep to clear it up and submit a correction. Lessons learned: 1. Don't gamble or invest in stocks. 2. Always use a professional to do your taxes. I was also informed never to sign a letter to agree. Fortunately I never did that.
kazinator 4y ago
> Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us – those with incomes so low they have filed returns claiming an anti-poverty earned income tax credit? Yes, in a sense it does. If you are auditing in order to catch under-reported income, it does make sense to look at lower income returns. If someone who made $500,000 reported $20,000, their return would be found among those from the honest poor taxpayers, not among those from the rich. Moreover, someone doing something that egregious is probably dumb enough to be easily busted by the audit processing, and the yield would be high. Higher earners will have tax returns which are professionally prepared, and complex. Auditing them is going to be a more time consuming process requiring more expertise, and have a low probability of yielding anything.
kyleblarson 4y ago
And the bill that just passed adds 87000 new IRS agents. Additionally every single democrat voted against an amendment that would have prevented new agents from auditing individuals and small businesses with less than $400,000 of taxable income.
- washbrain 4y ago
  Interesting, source on the amendment? Was there a poison pill in it?
  - kyleblarson 4y ago
    https://twitter.com/MikeCrapo/status/1556177703098884103 https://twitter.com/MikeCrapo/status/1556177703098884103
- toast0 4y ago
  > Additionally every single democrat voted against an amendment that would have prevented new agents from auditing individuals and small businesses with less than $400,000 of taxable income. How do you know how much taxable income someone has if you're unwilling to audit them?
- camel_Snake 4y ago
  This article about Janet Yellen instructing IRS not to use any additional funding to audit individuals or businesses making less than 400k contradicts you. [0] > The bill itself says the new funding is not "intended to increase taxes on any taxpayer or small business with a taxable income below $400,000." [0] https://www.cnn.com/2022/08/10/politics/yellen-new-irs-funding-audits/index.html https://www.cnn.com/2022/08/10/politics/yellen-new-irs-fundi...
- pgodzin 4y ago
  Why would anyone want to pass a law saying that anyone below a certain income threshold can cheat on their taxes and it's illegal for anyone to look into?
  - 4y ago
LorenPechtel 4y ago
I really wish they would quit calling the simple these-numbers-don't-match correspondence things "audits". It gives a very different picture to what's happening. Yeah, if you're poor you're a lot more likely to be doing your taxes by hand and thus you have much more room to make a copied-the-number-wrong mistake. Hence a high rate of "audits" in lower incomes. There's also more room to misunderstand something and enter wrong numbers. Separate them out based on whether it's just a letter kicked out by the computer and the taxpayer easily remedies whatever the computer was complaining about vs cases where the IRS is actually hunting for wrongdoing (say, unreported income from a cash-heavy small business.) I do agree, however, they need to target those with more. It's a lot harder so they tend not to and that has become much more severe because the Republicans have been deliberately starving them, they don't have the resources to do much of any actual auditing, it's almost all just these-numbers-don't-agree letters from the computer.
- kyleee 4y ago
  yes the "audit" word is a bit too formal and has very bad/strong connotations related to a full tax audit, i propose "reconciliation"
- serf 4y ago
  >Yeah, if you're poor you're a lot more likely to be doing your taxes by hand that hasn't been my experience. friends and family at poverty levels of income routinely buy TurboTax garbage or go to H&R Block or equivalents every year. These options, while wasteful, are attractive to them because they're low-effort and they generally offer pay-with-refund financing options.
selimthegrim 4y ago
I was making a few thousand a year chopping firewood and selling it to restaurants with my dad and the IRS audited me at 17. I’m pretty sure it was because I had donated to the Holy Land Foundation but come on.
mercy_dude 4y ago
Yeah and in the name of “inflation reduction” act, we have now decided to double the number of agents and make IRS the most bureaucratic heavy federal agency. Not to say they are heavily weaponized by one known party over their opposition, and when caught in the act nothing happened to thee agents. These federal agencies and their overreach go way beyond their scope. It is time to abolish these agencies.
exabrial 4y ago
Bullies don't mess with people that can defend themselves.
lawrenceyan 4y ago
I had a conversation with someone recently, and I think it makes sense to replace the income tax with some kind of proportional wealth tax. Especially as human labor becomes increasingly deemphasized in comparison to technology/capital. Calculations should be done to determine the exact number, but 2.5% seems like a reasonable starting point.
nazgulnarsil 4y ago
The bottom 50% of income tax payer result in 3% of irs receipts. This is theater.
prepend 4y ago
The purpose of the IRS is not to maximize revenue but to enforce the rules and laws of taxes. They don’t audit people based on how much they will recover, they audit based on errors and patterns in returns. Sadly, poor people have many errors and there’s a lot of mistakes and fraud with the earned income tax credit that is very valuable, especially for low income people.

260 points by heavyset_go 4y ago

There's one statistic that I didn't see but I'm now really curious about: what percentage of audits discover irregularities, per income level? If lower-income people are more likely than average to cheat on their taxes, then it makes sense to audit them more, but if they don't, then this is indeed totally unfair.

kevinventullo 4y ago
Also, the whole point is that they may in fact not be as low income as they claim!
- Scoundreller 4y ago
  Would make more sense if they looked at IRS audit rates by zip code.
SubiculumCode 4y ago
I'd guess that audits of the poor finds *less* but can be completed swiftly; if there is any quotas requiring X audits/month of IRS accountants, are you going to choose the 1040EZ or the tax filing with 50+ pages of mumbojumbo?
oneplane 4y ago
If we were to try to assess fairness, wouldn't it make sense to also take effects and side-effects into account? Say a disproportionate amount of poor families cheat, but also end up on the street after an audit, either not able to pay any outstanding taxes, or having paid them and no longer being able to afford a roof over their head. At the same time, while breaking the law should be the same for everyone else, wouldn't it also be more fair for small time violators to be treated less harsh, for example not having paid 100 dollars in tax vs. not having paid 1M. At the end of the day, the enforcement is there for one reason: to make sure everyone pays for the shared facilities of society. If you catch someone who was supposed to pay 250.000 or catch 1000 someones who all had 100 outstanding tax, wouldn't it make more sense to focus on the big fish first?
- josephcsible 4y ago
  There's a big difference between acknowledging that you owe taxes but not paying them, and lying that you don't owe taxes when you really do. I can only sympathize with people who do the former, and these audits are all about catching the latter.
  - singlow 4y ago
    The audits also catch a lot of cases where people don't know how to file anything beyond their basic employer withholdings. If a poorer, less educated person gets a 1099 for a side job or does an early withdrawal from their IRA, they are likely to fail to report it properly, or pay the required taxes. This is not usually intentional, they just don't know better. Even if they know they have to pay taxes on the money, they don't realize that the IRS didn't already take their cut just like they do from a paycheck.
    - googlryas 4y ago
      True, and the IRS is fairly reasonable about understanding when something is intentional or unintentional when levying fines and setting out payment plans.
- rglover 4y ago
  > wouldn't it make more sense to focus on the big fish first? Of course, but the reason they don't is that the tax system is a psychological control mechanism disguised as "doing good" (I make that assertion by looking at the utter amount of careless, unaccountable waste in government despite the endless gaslighting about "muh roads"). Why? Because if you can keep the majority in the psychological bracket of being the property of their government (purely via suggestion), you guarantee some percentage of cash flows. The "big fish" are smart and financed well-enough to circumvent (legally, in many cases) the system, while the little fish are ripe for catch and require far less worms/fishing poles to track down. This is why a flat tax rate with a floor is necessary. If you don't make above a certain amount per year (e.g., at or just above the poverty line), you don't pay any taxes. Everyone above that pays 10%. The government, as they should, adjusts their budget accordingly instead of treating citizens like an ATM. What the money gets spent on is transparent, itemized, and readily available for you, me, and everyone else. This would solve all of the unnecessary red tape and procedure, fearmongering, etc. And that's precisely why it will never happen.
nonameiguess 4y ago
Not sure that really follows. Is the goal of the audit to punish the maximum number of people or recover the maximum amount of money? If the latter, then it doesn't make much sense to spend most of your effort assessing $400 penalties.
- s1artibartfast 4y ago
  That depends on the ROI. If it costs a fraction of a penny to write a code that catches hundreds of thousands of $400 errors, the ROI is pretty good
offsign_p 4y ago
Exactly. Study makes a huge assumption that low earned income means the recipient is poor. Investment only income isn't "earned" income, unreported income isn't earned income -- both are probably good targets audits.
deleted 4y ago
[deleted]
JumpCrisscross 4y ago
> what percentage of audits discover irregularities, per income level? "The rate at which taxpayers understate their tax liability increases monotonically with income and average adjustments are highest in the highest income decile" [1]. [1] https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204 https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204
llbeansandrice 4y ago
They're not cheating. It's because the EITC is complex so it's easy to make mistakes. Also because the IRS doesn't have the proper staffing to actually go after people that are richer and file yet more complex tax returns. "Cheating" is a very loaded word to use here. Increasing funding so the IRS can hire the proper staff to enforce tax-law across the board is the solution and it results in net revenue for the government. But the GOP consistently opposes these measures and is intent on hamstringing the IRS in its ability to audit higher-income households and businesses.
- LorenPechtel 4y ago
  This. A large percentage of "audits" of the middle class and below are oopses, not cheating.

PsySecGroup 4y ago

Curious timing given the expansion of the IRS. EDIT: why is this getting down voted?

inanutshellus 4y ago
If I were wealthy enough to be /actually/ affected by the IRS expansion (400k+/yr) it would be a wise investment to spread articles like this to make sure The People are as against the IRS expansion as possible. I'm curious what the avg income level of your downvoters is... ;-)
- PsySecGroup 4y ago
  A 2022 $400K/year threshold hits population A. With inflation, The 2023 population A is much larger. The idea of $400K/year being slated as a "minority of easy-to-dismissed wealthy" will be an important frame to keep alive as population A keeps growing due to inflation.
  - throwaway5959 4y ago
    I’d happily pay more taxes if I could wake up tomorrow making $400k/year in 2023 dollars.
    - PsySecGroup 4y ago
      If want tommorrow's money to pay today's prices, start managing wealth. You'll end up getting tommorrow's money to paid for tommorrow's prices, however. And I'm pretty sure you won't like that. You never have, in fact.
    - washbrain 4y ago
      I make more than $400k, and my tax bill is criminally low.
  - alistairSH 4y ago
    $400k is a 98% percentile income in San Francisco metro, DC metro, and NYC metro. Sure, inflation may increase the number of households earning $400k, but it's still a tiny minority of the population and will be for a long time.

pilgrimfff 4y ago

This just doesn’t make sense from a financial standpoint. It seems doubtful the money recovered covers the cost of the audits.

throwaway292939 4y ago
Perhaps the idea of audits would discourage people from committing fraud in the first place.. so it may make sense
trebbble 4y ago
From the article: > A large increase in federal income tax audits targeting the poorest wage earners allowed the Internal Revenue Service to keep overall audit numbers from further declines for Americans as a whole during FY 2021. I'm guessing low-income people are, for a bunch of reasons including having simpler finances and ~no ability to hire legal counsel or other outside help, way cheaper to audit than those with more money are. This passage suggests they shifted focus there to keep their total-audits number from dropping even further. The IRS is experiencing a many-years-long deliberately-inflicted severe staffing shortage. IOW this was probably done to keep a metric someone cared about from dropping without requiring more funding, not because it's efficient or just or anything like that.
- albatross13 4y ago
  >without requiring more funding I might be missing something here, but are you disregarding the 80bn the IRS just got for another 87,000 auditors? Or are we talking funding for something else?
  - shkkmo 4y ago
    That is funding that has just been allocated, the results of that funding obviously won't be seen in data that predates that funding..
    - albatross13 4y ago

graton 4y ago

As the article states the "audits" are for the most part (~85% of the time) a letter sent to the person asking them to provide documentation for something. I would think most people think of an audit as having to meet in person with an IRS representative going over their taxes.

jwarden 4y ago
The author of the article asks "Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us?" But he has only established that the IRS sends more of these letters to the (self-reported) poorest taxpayers, and not that they actually spend more of their limited firepower on them.
tpmx 4y ago
- washbrain 4y ago
  Wait what? What about defining "correspondence audits" is political?
  - throwaway5959 4y ago
    For some people, it’s easier to ask them what isn’t political than what is. Once you realize that, their constant strife makes a lot more sense.
    - washbrain 4y ago
      I mean, I'm a Marxist and I think lots of stuff is political, but even I can't figure out what that poster was trying to say.
- raunak 4y ago
  I think you have that backwards buddy.

jwarden 4y ago

I think this statistic may be misleading. The article states that most of these are "correspondence audits", described as "essentially a letter from the IRS asking for documentation on a specific line item on a return." The headline statistics gives the impression that the IRS spends proportionally more money and effort on auditing poor families. But sending out a letter is easy and cheap. I realize now that the total number of audits may not be a good proxy for cost and effort if not all audits involve an IRS agent coming to your house and trying to guess the value of your artwork.

NovemberWhiskey 4y ago

The reason for this is almost entirely the Earned Income Tax Credit. The IRS estimates 21-26% of all EITC claims are improper. The rules are quite complex, which results in more errors and it is relatively straightforward for the IRS to detect certain classes of mistake or fraud through automation (i.e. to detect if the same child was claimed as a dependent by two different people on their return). Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that?

moomin 4y ago
They ignore much larger sums. The real reason they’re targeted is that, quite simply, they’re unable to fight back. It’s the equivalent of searching for your keys under the streetlight.
- AnimalMuppet 4y ago
  > They ignore much larger sums. Source? What category of stuff the IRS ignores adds up to more than $20 billion?
  - moralestapia 4y ago
    Bit of a tangent but, why $20BUSD?
    - thrdbndndn 4y ago
      >EITC errors/fraud cost the public purse $10-20bn a year
      - moralestapia 4y ago
        Oh that's right, my mind wandered a bit :l
    - NovemberWhiskey 4y ago
      $20bn is the estimated annual cost of fraudulent or otherwise improper Earned Income Tax Credits, which is the primary audit scope for low-income tax payers.

mannykannot 4y ago

This may explain why (it is from the National Taxpayer Advocate Erin M. Collins' annual report to congress): The IRS correspondence audit process is structured to expend the least amount of resources to conduct the largest number of examinations – resulting in the lowest level of customer service to taxpayers having the greatest need for assistance.

alex_young 4y ago
Isn’t that kind of the wrong way to structure resources? I could see making a case for either random auditing or for focusing on the largest possible sources of financial error, which surely would trend towards higher income level households.
- s1artibartfast 4y ago
  Not if you can automate detection for simple errors that are largely made by the poor
- mannykannot 4y ago
  I suspect it is a rational way for IRS staff to respond to a simplistic and apparently harmful performance mandate.
enterthematrix 4y ago
The thing is that's not designed to get the most amount of dollars - which is pretty moronic. This is just measuring the wrong thing. We should do the least work to get the most dollars.

shemnon42 4y ago

Is this really a fallout that the poorest families are more than five times more likely to do their own taxes instead of hiring a tax professional? Most audits are to account for sloppy bookkeeping or not attaching the correct documentation, not uncovering tax fraud schemes. (but many good tax fraud schemes look like bad bookkeeping, to be fair).

washbrain 4y ago
Another way it's extremely expensive to be poor.
NovemberWhiskey 4y ago
I couldn't find a more recent statistic; but lower incomes families are actually not much less likely to use a tax preparer than higher income families: https://www.taxpolicycenter.org/briefing-book/why-do-low-income-families-use-tax-preparers https://www.taxpolicycenter.org/briefing-book/why-do-low-inc...

washbrain 4y ago

This seems to have a statistical backing to me: I'd assume lower income folks take less time to audit than wealthy folks. I'd also assume there are more low income than high income people. My final assumption is that the IRS will start a new audit when they complete one, rather than just wait. Imagine then two auditors, both selecting random tax returns. One pulls a wealthy return, the other pulls a low income return. The person auditing the wealthy return spends two months working on theirs. The low income return is audited in a week. The auditor then pulls a second return, also low income. This one takes a week, so they pull another, also low income. You can see the pattern here - it's not malicious (though it may be a systemic injustice), it's an outcome of statistics playing out in unintended ways.

alistairSH 4y ago
You can see the pattern here - it's not malicious (though it may be a systemic injustice), it's an outcome of statistics playing out in unintended ways. Probably true. But purely from a revenue perspective, I wonder if larger emphasis on the rich would pay better dividends? Over half the audits are for returns with incomes less than $25,000. Even if there's a problem, the amount of recoverable money is really low. Even though most of those are "correspondence audits" (done via letter instead of face-to-face) somebody still hast to review any new documentation.
- washbrain 4y ago
  Oh, I totally agree with you. Random sampling is the wrong approach. There should be weighted random sampling by income.

xhkkffbf 4y ago

Inflation hits the poorest the most. And this new explosion in IRS attention is going to hit them too. I'm not sure why people think this is targeting the rich.

pessimizer 4y ago
Inflation is hitting the employed poorest the least, because they've had a recent pay raise. It's hitting the unemployed and the dependent hard, and hitting severely overborrowing and overextended middle-class people hard (and if their house prices go down again, they're in real trouble.)

jimbob45 4y ago

There was talk during the Trump administration of bringing the tax code in line such that it could “fit on a large postcard” or something like that. That went out the window for the final bill. I have to imagine that tax simplification would provide as much benefit to revenue as boosting audit counts. I’m told in European countries that y’all have your taxes pre-calculated and sent to your homes? I’m flabbergasted that we don’t do the same.

shkkmo 4y ago
> I’m flabbergasted that we don’t do the same. It is because Intuit and other large tax preparers have lobbied heavily against anything that makes taxes easier to file.
- missedthecue 4y ago
  How are you sure it's because of that?
  - washbrain 4y ago
    It's widely reported and widely understood that lobbying has specifically killed bills that have been introduced to simplify tax prep.
  - shkkmo 4y ago
    From Intuit's own files: > Internal presentations lay out company tactics for fighting “encroachment,” Intuit’s catchall term for any government initiative to make filing taxes easier — such as creating a free government filing system or pre-filling people’s returns with payroll or other data the IRS already has. “For a decade proposals have sought to create IRS tax software or a ReturnFree Tax System; All were stopped,” reads a confidential 2007 PowerPoint presentation from an Intuit board of directors meeting. https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free https://www.propublica.org/article/inside-turbotax-20-year-f...
  - mrguyorama 4y ago

singlow 4y ago

Wealthier people are much more likely to use a professional tax consultant or are better at knowing how to file. Audits are usually triggered by mistakes. Say the IRS gets a 1099 form that wasn't included in the return, which triggers an investigation. A wealthier person is much more likely to have filed the 1099 because they are more educated and/or can afford a tax professional. A poorer person is much more likely to just ignore the 1099 or not even know that it needs to be filed.

jeffwask 4y ago

The budget for the IRS has been continually slashed since Reagan despite all research on the subject showing increasing funding to the IRS funding increased revenue well beyond it's cost. The IRS has publicly stated on a number of occasions they do not go after the wealthy because they do not have the resources to win in the ensuing legal battles. This leaves the poor and middle class as the only groups they can target.

JumpCrisscross 4y ago
> budget for the IRS has been continually slashed since Reagan Congress is working on boosting it [1]. [1] https://crsreports.congress.gov/product/pdf/IN/IN11977 https://crsreports.congress.gov/product/pdf/IN/IN11977
washbrain 4y ago
This is 100% the story. The IRS can help make sure everyone is playing fair if we sufficiently fund them. And they can stop policing all the little issues and go after the big ones if we sufficiently fund them. AND sufficiently funding them is expected to increase tax revenue above the cost of funding them. It's the most obvious and should be the most bipartisan approach. It's introducing no new taxes, it's equitable, it improves revenue (which could allow you hypothetically cut taxes.) It drives me up the wall that this isn't just a fast, handshake and proceed bit of legislation.
- SirSourdough 4y ago
  It effectively introduces new taxes for the powerful people currently getting away with dodging them, which should be a pretty clear indication of why we aren’t seeing stronger support.
- JumpCrisscross 4y ago
  > should be the most bipartisan approach Lol [1][2][3]. [1] https://www.washingtonpost.com/business/2021/07/07/irs-taxes-budget-conservatives/ https://www.washingtonpost.com/business/2021/07/07/irs-taxes... [2] https://www.reuters.com/world/us/us-infrastructure-deal-teeters-after-republicans-reject-irs-funds-2021-07-20/ https://www.reuters.com/world/us/us-infrastructure-deal-teet... [3] https://www.foxbusiness.com/politics/middle-class-americans-bear-brunt-irs-audits-analysis-shows https://www.foxbusiness.com/politics/middle-class-americans-...

tomohawk 4y ago

And we're now going to get 87,000 more auditors. This is the largest increase in the federal police force (they are all armed) ever. The politicos are already dancing around this saying how "middle class" people will not have an increased chance of audit.

enterthematrix 4y ago
Fundamentally if you just pay your taxes, you shouldn't be audited (ideally.) That being said... an increase in auditors is net good because then the IRS can actually audit some of the massive number of tax crimes that occur. This is good.
- oaththrowaway 4y ago
  Less good for your pets
- tomohawk 4y ago
  The tax code is incredibly complex, which means unless your tax filing is trivial, you likely have misfiled. The Secretary of the Treasury (not current one) was found to have misfiled his return. When asked, all he could say was he put the numbers into Turbo Tax, and this is what it spit out. I have a family member who gets audited by the IRS every year. They've never found anything, but the harrassment continues year after year. Once the IRS has these additional people, they will have to use them, and they will have to justify them.
- sokoloff 4y ago
  I was the unfortunate subject of a TCMP/NRP audit. Even with no tax issues identified in the audit, this took over $2K in my representation costs, ran over a year in calendar time, and seemed to exhibit no concern for the wastefulness on either party’s time and money. This was a fairly simple W-2, 1099-B, 401(k) couple of regular workers with a couple kids return. Based on my experience, I’m not in favor of this expansion.
  - LorenPechtel 4y ago

cosmiccatnap 4y ago

Capital is a cascading problem of inequality. If you have money you can pay to keep it by having someone well versed in the tax laws to find a loophole. If you have a lot of capital you can even then use that money to essentially buy a new loophole in the tax law. Sad...but not surprising. Money buys everything in this age even laws and the people that govern them.

washbrain 4y ago
Surprising to see this downvoted. The OP is saying, "the wealthy have more resources to protect their wealth from audits." Which, like, is objectively true? And if you think money can't buy political goodwill these days, I'm not sure what to tell you...

Invictus0 4y ago

If the IRS randomly selected returns to examine, I would expect the poor to be samples more than everyone else because that is the largest category. Likewise if the IRS is sending automated letters to anyone that improperly claimed a credit commonly claimed by the poor, then I would expect that to disproportionately affect the poor. Sending an automated letter is hardly comparable to a real audit in any case. Without more context I don't think this can be deemed a scandal.

njbooher 4y ago
Incidence of audits per 1000 returns filed by poor people is (13.0/2.6)=5x the incidence of audits per 1000 returns filed by non-poor people.

ohiovr 4y ago

Free tax preparation services are vastly inferior to a personal service. I got audited because I did some stock market gambling and my return only showed the loss and gain for everything and not for every stock traded. So the IRS sent me a letter that my income was in the tens of thousands of dollars because every instrument sold was assumed to be of no cost to acquire making it 100% capital gains. When TD ameritrade reported my trades they did not report the cost basis to them. So I got a letter saying I owed thousands in taxes with no indication in there that I should see a tax prep to clear it up and submit a correction. Lessons learned: 1. Don't gamble or invest in stocks. 2. Always use a professional to do your taxes. I was also informed never to sign a letter to agree. Fortunately I never did that.

kazinator 4y ago

> Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us – those with incomes so low they have filed returns claiming an anti-poverty earned income tax credit? Yes, in a sense it does. If you are auditing in order to catch under-reported income, it does make sense to look at lower income returns. If someone who made $500,000 reported $20,000, their return would be found among those from the honest poor taxpayers, not among those from the rich. Moreover, someone doing something that egregious is probably dumb enough to be easily busted by the audit processing, and the yield would be high. Higher earners will have tax returns which are professionally prepared, and complex. Auditing them is going to be a more time consuming process requiring more expertise, and have a low probability of yielding anything.

kyleblarson 4y ago

And the bill that just passed adds 87000 new IRS agents. Additionally every single democrat voted against an amendment that would have prevented new agents from auditing individuals and small businesses with less than $400,000 of taxable income.

washbrain 4y ago
Interesting, source on the amendment? Was there a poison pill in it?
- kyleblarson 4y ago
  https://twitter.com/MikeCrapo/status/1556177703098884103 https://twitter.com/MikeCrapo/status/1556177703098884103
toast0 4y ago
> Additionally every single democrat voted against an amendment that would have prevented new agents from auditing individuals and small businesses with less than $400,000 of taxable income. How do you know how much taxable income someone has if you're unwilling to audit them?
camel_Snake 4y ago
This article about Janet Yellen instructing IRS not to use any additional funding to audit individuals or businesses making less than 400k contradicts you. [0] > The bill itself says the new funding is not "intended to increase taxes on any taxpayer or small business with a taxable income below $400,000." [0] https://www.cnn.com/2022/08/10/politics/yellen-new-irs-funding-audits/index.html https://www.cnn.com/2022/08/10/politics/yellen-new-irs-fundi...
pgodzin 4y ago
Why would anyone want to pass a law saying that anyone below a certain income threshold can cheat on their taxes and it's illegal for anyone to look into?
- 4y ago

LorenPechtel 4y ago

I really wish they would quit calling the simple these-numbers-don't-match correspondence things "audits". It gives a very different picture to what's happening. Yeah, if you're poor you're a lot more likely to be doing your taxes by hand and thus you have much more room to make a copied-the-number-wrong mistake. Hence a high rate of "audits" in lower incomes. There's also more room to misunderstand something and enter wrong numbers. Separate them out based on whether it's just a letter kicked out by the computer and the taxpayer easily remedies whatever the computer was complaining about vs cases where the IRS is actually hunting for wrongdoing (say, unreported income from a cash-heavy small business.) I do agree, however, they need to target those with more. It's a lot harder so they tend not to and that has become much more severe because the Republicans have been deliberately starving them, they don't have the resources to do much of any actual auditing, it's almost all just these-numbers-don't-agree letters from the computer.

kyleee 4y ago
yes the "audit" word is a bit too formal and has very bad/strong connotations related to a full tax audit, i propose "reconciliation"
serf 4y ago
>Yeah, if you're poor you're a lot more likely to be doing your taxes by hand that hasn't been my experience. friends and family at poverty levels of income routinely buy TurboTax garbage or go to H&R Block or equivalents every year. These options, while wasteful, are attractive to them because they're low-effort and they generally offer pay-with-refund financing options.

selimthegrim 4y ago

I was making a few thousand a year chopping firewood and selling it to restaurants with my dad and the IRS audited me at 17. I’m pretty sure it was because I had donated to the Holy Land Foundation but come on.

mercy_dude 4y ago

Yeah and in the name of “inflation reduction” act, we have now decided to double the number of agents and make IRS the most bureaucratic heavy federal agency. Not to say they are heavily weaponized by one known party over their opposition, and when caught in the act nothing happened to thee agents. These federal agencies and their overreach go way beyond their scope. It is time to abolish these agencies.

exabrial 4y ago

Bullies don't mess with people that can defend themselves.

lawrenceyan 4y ago

I had a conversation with someone recently, and I think it makes sense to replace the income tax with some kind of proportional wealth tax. Especially as human labor becomes increasingly deemphasized in comparison to technology/capital. Calculations should be done to determine the exact number, but 2.5% seems like a reasonable starting point.

nazgulnarsil 4y ago

The bottom 50% of income tax payer result in 3% of irs receipts. This is theater.

prepend 4y ago

The purpose of the IRS is not to maximize revenue but to enforce the rules and laws of taxes. They don’t audit people based on how much they will recover, they audit based on errors and patterns in returns. Sadly, poor people have many errors and there’s a lot of mistakes and fraud with the earned income tax credit that is very valuable, especially for low income people.