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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, whi

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.
  - ribosometronome 4y ago
    https://www.crfb.org/blogs/primer-understanding-tax-gap https://www.crfb.org/blogs/primer-understanding-tax-gap The IRS estimates there's a net tax gap of $554 billion in 2019. They break it down into 5 categories with values from 2011-2013 that all are over 20 billion each: underreported income, over/misreported adjustments, underpayment, non-filing, and other underreporting. They note that their 2011-2013 estimate failed to include underreporting of offshore wealth and wealth going through pass through entities, which resulted in a tax gap of $33 billion per year to the 2011-2013 estimate and 46 billion for 2019.
  - wizofaus 4y ago
    Given the total collected is over 4 trillion it's not hard to imagine other categories worth far more than 20 billion.
- lostcolony 4y ago
  They don't ignore much larger sums; larger sums are much harder to automate detection of. So with the limited amount of manpower they have, far fewer are identified. They can send a letter asking for documentation for everything the automated system flags. The automated system detects "simple" cases at a far higher confidence ratio, which tends to be lower income. Once you get upper income, with all manner of complicated itemized deductions, the confidence of the automated system is much lower, and the effort to ask for appropriate documentation, and verify it, is much higher, for a much lower expectation of return (since, again, low confidence from the system).
  - LorenPechtel 4y ago
    And the rich guy probably has a CPA filing their taxes. It's quite unlikely there will be anything in there that's easily detected.
    - ghaff 4y ago
      Or that is a flat-out mistake. You're right that wealthier people probably aren't going to commit obvious fraud like "forgetting" a 1099. But, assuming they are not deliberately committing fraud, their CPA will probably not make any obvious errors either.
      - mindslight 4y ago
        I wouldn't be so sure about that. I just got a letter from the IRS pointing out an error in an amended return my CPA had filed, presumably with the help of software. They tallied total taxable income to a nonzero amount, but then put a zero for the tax due on that amount. I missed it on my own review because it was one of many returns I had to file.
        ghaff 4y ago
        Hence probably. I have no doubt CPAs like every professional including developers make mistakes. Although I assume they're probably mostly obvious one which can be corrected fairly easily. I'm also sure there are outliers. >I missed it on my own review because it was one of many returns I had to file. Honestly, I look through my returns but they're way past the point where I could find most errors even though my finances aren't especially complex.
- marwatk 4y ago
  This is addressed in the article: > A critical limitation in the IRS’s ability to audit millionaires is the availability of IRS revenue agents. Only this class of auditors, given sufficient training and experience, are qualified to examine complex tax returns – the types of returns typically filed by high-income individuals and large-scale businesses. > With severe budget constraints, IRS has tended to trade off the replacement of revenue agents with hiring more tax examiners. These certainly are paid less, but they are also less knowledgeable. While revenue agents used to outnumber tax examiners, this has slowly shifted over time.
  - deleted 4y ago
    [deleted]
  - wongarsu 4y ago
    I'd be interesting to see how the ratio of revenue agents to tax examiners would shift if the IRS would get a portion of discovered tax fraud back into their budget.
    - syspec 4y ago
      There's no way that's a good idea. See police departments + (civil asset forfeiture and small town speed traps)
    - TAForObvReasons 4y ago
      Looked into this years ago in a semi-related discussion: https://news.ycombinator.com/item?id=21874358 https://news.ycombinator.com/item?id=21874358 https://www.finance.senate.gov/ranking-members-news/irs-budget-cut-translates-to-huge-tax-loss https://www.finance.senate.gov/ranking-members-news/irs-budg... > IRS Research Division estimates in the 2003 GAO report, however, placed returns for activities such as tax enforcement at more than ten – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return 13 dollars for every dollar spent. Audits by mail returned as much as 11 dollars for every dollar spent. Using the overall rate of a four to one return, this year’s $100 million budget cut translates to a $400 million loss. Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.
- JumpCrisscross 4y ago
  > they ignore much larger sums Not really [1]. When you make more than $500k, your audit rate doubles from the national average of 0.25%. It doubles again at $1mm and more than doubles once more at $5mm. EITC-only returns are audited around the frequency (0.77%) of someone making $500k to $1mm. I'm not sure why $1 to 25k is audited at the same frequency as $500k to $1mm. But given "from fiscal years 2010 to 2021, the majority of the additional taxes IRS recommended from audits came from taxpayers with incomes below $200,000" and that "EITC audits are primarily pre-refund audits and are conducted through correspondence," it seems--very roughly--closer to the optimum than the headline suggests. [1] https://www.gao.gov/products/gao-22-104960 https://www.gao.gov/products/gao-22-104960
  - koheripbal 4y ago
    It's important to remember that an "EITC correction" != "audit", despite the parent assuming all audits are equal. Correcting a simple error might never even involve a human IRS auditor. It's as simple as an automated letter going out and instructing someone to correct an obvious mistake (this happened to me). Never spoke to anyone - just submitted the correction. There should be no limit to audits that are nearly-automated, regardless of whom they target. Audits that require an investigator are far more effort and those investigative resources need to be proportioned by the expected return on investment. ...and while that will likely tend more frequently to the rich, it shouldn't necessarily be so.
    - NovemberWhiskey 4y ago
      https://www.taxaudit.com/irs-letters/irs-letter-cp75a-sample-1 https://www.taxaudit.com/irs-letters/irs-letter-cp75a-sample... This is what a typical audit of EITC looks like. It is literally "send us some forms and some proof like a birth certificate showing you're the parent of the child you're claiming".
    - int_19h 4y ago
      If it's so automated, why require people to submit tax returns at all? Just calculate everything and send them the breakdown along with the check.
- bryanrasmussen 4y ago
  no, the searching for the keys under the streetlight joke is funny because you will never find the keys under the streetlight no matter how nice it might be to search for them with a good light source, whereas you will be able to relatively easy find small sums of money and make people it from the poor families under discussion here.
  - worik 4y ago
    > you will never find the keys under the streetlight That is a strong statement! It is not true, some times that is where they are. Actually if it is the only place you could find them (the rest of the street is too dark, you do not have a torch to see or fingers to feel....) it is an optimal, albeit dismal, strategy Loving digression.....
    - bryanrasmussen 4y ago
      evidently you used the phrase without familiarity with its origin? https://en.wikipedia.org/wiki/Streetlight_effect https://en.wikipedia.org/wiki/Streetlight_effect >A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, "this is where the light is". Hence, the drunk and the policeman are never going to find the keys under the streetlamp because they were lost in the park.
- NovemberWhiskey 4y ago
  No; it's simpler than that. Tax fraud doesn't distribute by income; it distributes by nature of income, and the ease with which that income is validated. Some really large proportion of Americans are basically W-2 filers taking the standard deduction. These Americans have no opportunity to evade taxes. Most income tax fraud probably takes place in the area of passthrough businesses and other areas where tax verification isn't simply a problem of reconciling what employer A (or brokerage B, for dividends and stock sales, or bank C, for interest) said they paid to person P with what person P reported on their return. TL;DR - it's hard to execute a fraud when the IRS already has the corresponding 1099s on-file for you.
  - Kye 4y ago
    This will probably change with the 1099k requirement dropping to $600 nationwide. Or it'll further overwhelm the IRS.
  - prepend 4y ago
    > These Americans have no opportunity to evade taxes. I think there’s a lot of opportunity related to kids. Deductions and credits vary and can be mistakenly or willfully claimed.
- gist 4y ago
  > The real reason they’re targeted is that, quite simply, they’re unable to fight back. I think there is a misunderstanding of what an 'audit' means. It can be as simple as a letter from the IRS (after their analysis alerts them) asking that certain documents be provided to support a deduction or otherwise. The IRS is not conducting large scale audits on people with low incomes it would not be feasible there is not enough to even dig into. What the government (in this particular case for the EITC) should be easy for the taxpayer to reply with info needed to dispute the claim.
  - biomcgary 4y ago
    I got a tax bill for more than a hundred thousand dollars when I sold my primary residence a few years ago. No taxes were actually owed due to the primary residence carve out for capital gains. The sale had been reported to the IRS by a couple different entities (realtor and title company, IIRC) with a few dollar discrepancy, so the transaction was not merged, even though they for the same address (and single family home). I wrote the IRS a nice letter and they eventually replied that they were closing the case. Sometimes "unpaid" taxes are due to limitations of the IRS, which has historically had very legacy software (not sure if that has been fixed recently).
jabbany 4y ago
If it's that complicated and they are doing audits anyways, can't they just automatically apply EITC without relying on people to figure out this stuff and how to claim it?
- kube-system 4y ago
  No because tax prep companies have lobbied our legislators to make that illegal (and many would politically be against the data collection that would be logically necessary to determine many of the common credits/deductions)
  - jabbany 4y ago
    The second thing could be easy to deal with though, just make data sharing be a consent based process. You can opt in to auto-filing by allowing data sharing with the IRS. People who appreciate the convenience can opt in and those who don't can just not (instead manually providing the requisite documents/proofs/numbers just like today).
    - kube-system 4y ago
      Not infrequently, the data involves third party cooperation, so it's not really that simple.
  - LorenPechtel 4y ago
    They already have the data to auto-prepare most tax returns. That would be very bad news for the tax prep companies, though. There also is the problem that if they auto-prepare returns they're telling the taxpayer exactly what they know and thus how the taxpayer can cheat with a low probability of detection. I don't think that's an adequate reason against automating it, though. What I would like to see is say March 1 they mail out pre-filled tax forms, except every line has an extra box on it that's empty. If you think it's right you simply sign and return it with payment if needed. If you have minor disagreements with it (for example, it's unlikely they'll know everything for schedule A) you can fill in the extra boxes with the correct values. You may then either propagate those numbers through and pay the adjusted amount, or you can ignore this part, they update the return with your new numbers and send you a bill. Lastly you can bin it and do it yourself from scratch.
cma 4y ago
We should have an electronic filing system: if someone else filed claiming a dependent the next person to try to gets an error message and can resolve it amicably instead of hiring manual auditors to deal with an error/crime that shouldn't even be able to exist.
- gowld 4y ago
- kube-system 4y ago
  We do have an electronic filing system, and it does throw errors for some filing issues. The US has >0 people who do not use computers, though, so a manual intervention process is necessary.
JumpCrisscross 4y ago
> reason for this is almost entirely the Earned Income Tax Credit "As a lower bound, about half of the spike [in operational audit selection rate on the lower end of the income spectrum apparent in 2014] is explained by EITC-eligibility-related projects" [1]. [1] https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204 https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204
jmyeet 4y ago
> Is the IRS just supposed to ignore that? Yes. Or, better yet, just give it to everyone and pay for it by: 1. Eliminating the carried interest tax credit, which has somehow survived 15+ years. It is quite literally a giveaway to hedge fund managers who get to pay lower taxes on managements because reasons. It most recently survived by being removed from the Inflation Reduction Act at the behest of Senator Kirsten Senema (D-AZ); 2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt; 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; 4. Tax stocks on market value every year just like we do with property. Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous. Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources. In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.
- NovemberWhiskey 4y ago
  >Or, better yet, just give it to everyone and pay for it by The IRS doesn't author tax policy. Congress is over there --->
  - cortesoft 4y ago
    Sure, but as the article states, the IRS is already ignoring entire categories of tax fraud that is illegal under the law. This means the clearly have discretion over what to pursue. They could choose not to pursue EITC fraud at all.
    - NovemberWhiskey 4y ago
      Would it be rational to audit (say) one additional millionaire rather than correcting objectively massive fraud/error rates in the EITC? I would say not. Then the question remains is what the break-even point is. Neither you nor I know the internal numbers here so it's impossible to discuss whether the current policy is reasonable or not.
SQueeeeeL 4y ago
>Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that? I love the advanced level of neoliberalism we're seeing now. Oh no, poor people aren't committing tax fraud properly, gotta run after them. Meanwhile pretty much every US corporation abuses tax laws to the absolute limit to serve their shareholders (on the order of trillions of dollars of lost revenue), and somehow that's "okay" (i.e. the IRS doesn't audit them and the justice dept doesn't go after them)
- JumpCrisscross 4y ago
  > the IRS doesn't audit [U.S. corporations] Corporate auditing is down, but with audit rates at 50% for $20+ billion in assets and 22% for $5 to 20bn [1], corporate America is the most thoroughly tax audited slice of the country. > the justice dept doesn't go after them Yes, it does [2]. [1] https://www.washingtonpost.com/business/2021/07/14/corporate-tax-break-irs/ https://www.washingtonpost.com/business/2021/07/14/corporate... [2] https://www.justice.gov/tax/tax-division-press-releases https://www.justice.gov/tax/tax-division-press-releases
Retric 4y ago
The reason is they can “audit” the EITC by sending some letters and doing some very simple validation. Auditing millionares is much harder to automate. So even if they spend very little time or money on dealing with the EITC they end up doing a lot more audits.
jeffbee 4y ago
There's a very easy way to make a revenue-neutral simplification to tax codes. Every refund, subsidy, credit, or whatever is universal without regard to income of the recipient. They are all taxable, and the progressive nature of the income tax ensures that the people to whom the benefit was targeted get the most benefit and the wealthy people who need it the least get the least net benefits. This solves a huge number of problems: tax code too complex, weird incentives near the edges of income phaseouts (i.e. rent subsidy recipients who are disincentivized to earn more), gets rid of massive bureaucracies dedicated to checking eligibility, etc.
junar 4y ago
It's on Congress to fix the EITC, too. There are already detailed proposals to reform it [1], but nothing will change unless Congress has the will to do it. [1] https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/JRC20_Volume3.pdf https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020...
ransom1538 4y ago
Exactly. It's easier to catch when things are automated. People of lessor means generally have simple tax returns. However, good luck catching a rich persons 1031 Exchange or an improper 83(b) Election. Those just don't scale.
alexbiet 4y ago
It looks more like a self-created problem. The tax code is unnecessarily complex and this creates confusion for most citizens, including the IRS itself. Simplifying the tax code would solve a lot of these headaches plus remove the EITC errors/fraud cost of $10bn-20bn a year. A simple and reasonable one-liner tax code can be something like: "all businesses and citizens pay 10% of their monthly revenue to fund a small efficient government and social institutions (education, health, firefighters, police, etc)."
speby 4y ago
This does not sound right at all. A lot of "automated" checks by the IRS that result in a return being corrected (such as more money being owed, for example, because of an automated check that found a mistake, such as someone forgetting to report 1099 income), the IRS simply sends a letter indicating the correction, the reason for it, and any balance due. It's not "audit" when they do these automated checks.
- NovemberWhiskey 4y ago
  The IRS sends out notices of correction when it knows what the answer is (like, you typed this number in wrong from your W-2) but most of the EITC problems are apparent problems of fact (is this your child? does this child live with you?) rather than this kind.
stjohnswarts 4y ago
Probably because they don't have the accountants to cover up and cook the books like the 1%, I don't think it's because of "criminal tendencies" of that income bracket like some would claim.

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.
- ribosometronome 4y ago
  https://www.crfb.org/blogs/primer-understanding-tax-gap https://www.crfb.org/blogs/primer-understanding-tax-gap The IRS estimates there's a net tax gap of $554 billion in 2019. They break it down into 5 categories with values from 2011-2013 that all are over 20 billion each: underreported income, over/misreported adjustments, underpayment, non-filing, and other underreporting. They note that their 2011-2013 estimate failed to include underreporting of offshore wealth and wealth going through pass through entities, which resulted in a tax gap of $33 billion per year to the 2011-2013 estimate and 46 billion for 2019.
- wizofaus 4y ago
  Given the total collected is over 4 trillion it's not hard to imagine other categories worth far more than 20 billion.
lostcolony 4y ago
They don't ignore much larger sums; larger sums are much harder to automate detection of. So with the limited amount of manpower they have, far fewer are identified. They can send a letter asking for documentation for everything the automated system flags. The automated system detects "simple" cases at a far higher confidence ratio, which tends to be lower income. Once you get upper income, with all manner of complicated itemized deductions, the confidence of the automated system is much lower, and the effort to ask for appropriate documentation, and verify it, is much higher, for a much lower expectation of return (since, again, low confidence from the system).
- LorenPechtel 4y ago
  And the rich guy probably has a CPA filing their taxes. It's quite unlikely there will be anything in there that's easily detected.
  - ghaff 4y ago
    Or that is a flat-out mistake. You're right that wealthier people probably aren't going to commit obvious fraud like "forgetting" a 1099. But, assuming they are not deliberately committing fraud, their CPA will probably not make any obvious errors either.
    - mindslight 4y ago
      I wouldn't be so sure about that. I just got a letter from the IRS pointing out an error in an amended return my CPA had filed, presumably with the help of software. They tallied total taxable income to a nonzero amount, but then put a zero for the tax due on that amount. I missed it on my own review because it was one of many returns I had to file.
      - ghaff 4y ago
        Hence probably. I have no doubt CPAs like every professional including developers make mistakes. Although I assume they're probably mostly obvious one which can be corrected fairly easily. I'm also sure there are outliers. >I missed it on my own review because it was one of many returns I had to file. Honestly, I look through my returns but they're way past the point where I could find most errors even though my finances aren't especially complex.
marwatk 4y ago
This is addressed in the article: > A critical limitation in the IRS’s ability to audit millionaires is the availability of IRS revenue agents. Only this class of auditors, given sufficient training and experience, are qualified to examine complex tax returns – the types of returns typically filed by high-income individuals and large-scale businesses. > With severe budget constraints, IRS has tended to trade off the replacement of revenue agents with hiring more tax examiners. These certainly are paid less, but they are also less knowledgeable. While revenue agents used to outnumber tax examiners, this has slowly shifted over time.
- deleted 4y ago
  [deleted]
- wongarsu 4y ago
  I'd be interesting to see how the ratio of revenue agents to tax examiners would shift if the IRS would get a portion of discovered tax fraud back into their budget.
  - syspec 4y ago
    There's no way that's a good idea. See police departments + (civil asset forfeiture and small town speed traps)
  - TAForObvReasons 4y ago
    Looked into this years ago in a semi-related discussion: https://news.ycombinator.com/item?id=21874358 https://news.ycombinator.com/item?id=21874358 https://www.finance.senate.gov/ranking-members-news/irs-budget-cut-translates-to-huge-tax-loss https://www.finance.senate.gov/ranking-members-news/irs-budg... > IRS Research Division estimates in the 2003 GAO report, however, placed returns for activities such as tax enforcement at more than ten – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return 13 dollars for every dollar spent. Audits by mail returned as much as 11 dollars for every dollar spent. Using the overall rate of a four to one return, this year’s $100 million budget cut translates to a $400 million loss. Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.
JumpCrisscross 4y ago
> they ignore much larger sums Not really [1]. When you make more than $500k, your audit rate doubles from the national average of 0.25%. It doubles again at $1mm and more than doubles once more at $5mm. EITC-only returns are audited around the frequency (0.77%) of someone making $500k to $1mm. I'm not sure why $1 to 25k is audited at the same frequency as $500k to $1mm. But given "from fiscal years 2010 to 2021, the majority of the additional taxes IRS recommended from audits came from taxpayers with incomes below $200,000" and that "EITC audits are primarily pre-refund audits and are conducted through correspondence," it seems--very roughly--closer to the optimum than the headline suggests. [1] https://www.gao.gov/products/gao-22-104960 https://www.gao.gov/products/gao-22-104960
- koheripbal 4y ago
  It's important to remember that an "EITC correction" != "audit", despite the parent assuming all audits are equal. Correcting a simple error might never even involve a human IRS auditor. It's as simple as an automated letter going out and instructing someone to correct an obvious mistake (this happened to me). Never spoke to anyone - just submitted the correction. There should be no limit to audits that are nearly-automated, regardless of whom they target. Audits that require an investigator are far more effort and those investigative resources need to be proportioned by the expected return on investment. ...and while that will likely tend more frequently to the rich, it shouldn't necessarily be so.
  - NovemberWhiskey 4y ago
    https://www.taxaudit.com/irs-letters/irs-letter-cp75a-sample-1 https://www.taxaudit.com/irs-letters/irs-letter-cp75a-sample... This is what a typical audit of EITC looks like. It is literally "send us some forms and some proof like a birth certificate showing you're the parent of the child you're claiming".
  - int_19h 4y ago
    If it's so automated, why require people to submit tax returns at all? Just calculate everything and send them the breakdown along with the check.
bryanrasmussen 4y ago
no, the searching for the keys under the streetlight joke is funny because you will never find the keys under the streetlight no matter how nice it might be to search for them with a good light source, whereas you will be able to relatively easy find small sums of money and make people it from the poor families under discussion here.
- worik 4y ago
  > you will never find the keys under the streetlight That is a strong statement! It is not true, some times that is where they are. Actually if it is the only place you could find them (the rest of the street is too dark, you do not have a torch to see or fingers to feel....) it is an optimal, albeit dismal, strategy Loving digression.....
  - bryanrasmussen 4y ago
    evidently you used the phrase without familiarity with its origin? https://en.wikipedia.org/wiki/Streetlight_effect https://en.wikipedia.org/wiki/Streetlight_effect >A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, "this is where the light is". Hence, the drunk and the policeman are never going to find the keys under the streetlamp because they were lost in the park.
NovemberWhiskey 4y ago
No; it's simpler than that. Tax fraud doesn't distribute by income; it distributes by nature of income, and the ease with which that income is validated. Some really large proportion of Americans are basically W-2 filers taking the standard deduction. These Americans have no opportunity to evade taxes. Most income tax fraud probably takes place in the area of passthrough businesses and other areas where tax verification isn't simply a problem of reconciling what employer A (or brokerage B, for dividends and stock sales, or bank C, for interest) said they paid to person P with what person P reported on their return. TL;DR - it's hard to execute a fraud when the IRS already has the corresponding 1099s on-file for you.
- Kye 4y ago
  This will probably change with the 1099k requirement dropping to $600 nationwide. Or it'll further overwhelm the IRS.
- prepend 4y ago
  > These Americans have no opportunity to evade taxes. I think there’s a lot of opportunity related to kids. Deductions and credits vary and can be mistakenly or willfully claimed.
gist 4y ago
> The real reason they’re targeted is that, quite simply, they’re unable to fight back. I think there is a misunderstanding of what an 'audit' means. It can be as simple as a letter from the IRS (after their analysis alerts them) asking that certain documents be provided to support a deduction or otherwise. The IRS is not conducting large scale audits on people with low incomes it would not be feasible there is not enough to even dig into. What the government (in this particular case for the EITC) should be easy for the taxpayer to reply with info needed to dispute the claim.
- biomcgary 4y ago
  I got a tax bill for more than a hundred thousand dollars when I sold my primary residence a few years ago. No taxes were actually owed due to the primary residence carve out for capital gains. The sale had been reported to the IRS by a couple different entities (realtor and title company, IIRC) with a few dollar discrepancy, so the transaction was not merged, even though they for the same address (and single family home). I wrote the IRS a nice letter and they eventually replied that they were closing the case. Sometimes "unpaid" taxes are due to limitations of the IRS, which has historically had very legacy software (not sure if that has been fixed recently).

jabbany 4y ago

If it's that complicated and they are doing audits anyways, can't they just automatically apply EITC without relying on people to figure out this stuff and how to claim it?

kube-system 4y ago
No because tax prep companies have lobbied our legislators to make that illegal (and many would politically be against the data collection that would be logically necessary to determine many of the common credits/deductions)
- jabbany 4y ago
  The second thing could be easy to deal with though, just make data sharing be a consent based process. You can opt in to auto-filing by allowing data sharing with the IRS. People who appreciate the convenience can opt in and those who don't can just not (instead manually providing the requisite documents/proofs/numbers just like today).
  - kube-system 4y ago
    Not infrequently, the data involves third party cooperation, so it's not really that simple.
- LorenPechtel 4y ago
  They already have the data to auto-prepare most tax returns. That would be very bad news for the tax prep companies, though. There also is the problem that if they auto-prepare returns they're telling the taxpayer exactly what they know and thus how the taxpayer can cheat with a low probability of detection. I don't think that's an adequate reason against automating it, though. What I would like to see is say March 1 they mail out pre-filled tax forms, except every line has an extra box on it that's empty. If you think it's right you simply sign and return it with payment if needed. If you have minor disagreements with it (for example, it's unlikely they'll know everything for schedule A) you can fill in the extra boxes with the correct values. You may then either propagate those numbers through and pay the adjusted amount, or you can ignore this part, they update the return with your new numbers and send you a bill. Lastly you can bin it and do it yourself from scratch.

cma 4y ago

We should have an electronic filing system: if someone else filed claiming a dependent the next person to try to gets an error message and can resolve it amicably instead of hiring manual auditors to deal with an error/crime that shouldn't even be able to exist.

gowld 4y ago
kube-system 4y ago
We do have an electronic filing system, and it does throw errors for some filing issues. The US has >0 people who do not use computers, though, so a manual intervention process is necessary.

JumpCrisscross 4y ago

> reason for this is almost entirely the Earned Income Tax Credit "As a lower bound, about half of the spike [in operational audit selection rate on the lower end of the income spectrum apparent in 2014] is explained by EITC-eligibility-related projects" [1]. [1] https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204 https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204

jmyeet 4y ago

> Is the IRS just supposed to ignore that? Yes. Or, better yet, just give it to everyone and pay for it by: 1. Eliminating the carried interest tax credit, which has somehow survived 15+ years. It is quite literally a giveaway to hedge fund managers who get to pay lower taxes on managements because reasons. It most recently survived by being removed from the Inflation Reduction Act at the behest of Senator Kirsten Senema (D-AZ); 2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt; 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes; 4. Tax stocks on market value every year just like we do with property. Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous. Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources. In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.

NovemberWhiskey 4y ago
>Or, better yet, just give it to everyone and pay for it by The IRS doesn't author tax policy. Congress is over there --->
- cortesoft 4y ago
  Sure, but as the article states, the IRS is already ignoring entire categories of tax fraud that is illegal under the law. This means the clearly have discretion over what to pursue. They could choose not to pursue EITC fraud at all.
  - NovemberWhiskey 4y ago
    Would it be rational to audit (say) one additional millionaire rather than correcting objectively massive fraud/error rates in the EITC? I would say not. Then the question remains is what the break-even point is. Neither you nor I know the internal numbers here so it's impossible to discuss whether the current policy is reasonable or not.

SQueeeeeL 4y ago

>Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that? I love the advanced level of neoliberalism we're seeing now. Oh no, poor people aren't committing tax fraud properly, gotta run after them. Meanwhile pretty much every US corporation abuses tax laws to the absolute limit to serve their shareholders (on the order of trillions of dollars of lost revenue), and somehow that's "okay" (i.e. the IRS doesn't audit them and the justice dept doesn't go after them)

JumpCrisscross 4y ago
> the IRS doesn't audit [U.S. corporations] Corporate auditing is down, but with audit rates at 50% for $20+ billion in assets and 22% for $5 to 20bn [1], corporate America is the most thoroughly tax audited slice of the country. > the justice dept doesn't go after them Yes, it does [2]. [1] https://www.washingtonpost.com/business/2021/07/14/corporate-tax-break-irs/ https://www.washingtonpost.com/business/2021/07/14/corporate... [2] https://www.justice.gov/tax/tax-division-press-releases https://www.justice.gov/tax/tax-division-press-releases

Retric 4y ago

The reason is they can “audit” the EITC by sending some letters and doing some very simple validation. Auditing millionares is much harder to automate. So even if they spend very little time or money on dealing with the EITC they end up doing a lot more audits.

jeffbee 4y ago

There's a very easy way to make a revenue-neutral simplification to tax codes. Every refund, subsidy, credit, or whatever is universal without regard to income of the recipient. They are all taxable, and the progressive nature of the income tax ensures that the people to whom the benefit was targeted get the most benefit and the wealthy people who need it the least get the least net benefits. This solves a huge number of problems: tax code too complex, weird incentives near the edges of income phaseouts (i.e. rent subsidy recipients who are disincentivized to earn more), gets rid of massive bureaucracies dedicated to checking eligibility, etc.

junar 4y ago

It's on Congress to fix the EITC, too. There are already detailed proposals to reform it [1], but nothing will change unless Congress has the will to do it. [1] https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/JRC20_Volume3.pdf https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020...

ransom1538 4y ago

Exactly. It's easier to catch when things are automated. People of lessor means generally have simple tax returns. However, good luck catching a rich persons 1031 Exchange or an improper 83(b) Election. Those just don't scale.

alexbiet 4y ago

It looks more like a self-created problem. The tax code is unnecessarily complex and this creates confusion for most citizens, including the IRS itself. Simplifying the tax code would solve a lot of these headaches plus remove the EITC errors/fraud cost of $10bn-20bn a year. A simple and reasonable one-liner tax code can be something like: "all businesses and citizens pay 10% of their monthly revenue to fund a small efficient government and social institutions (education, health, firefighters, police, etc)."

speby 4y ago

This does not sound right at all. A lot of "automated" checks by the IRS that result in a return being corrected (such as more money being owed, for example, because of an automated check that found a mistake, such as someone forgetting to report 1099 income), the IRS simply sends a letter indicating the correction, the reason for it, and any balance due. It's not "audit" when they do these automated checks.

NovemberWhiskey 4y ago
The IRS sends out notices of correction when it knows what the answer is (like, you typed this number in wrong from your W-2) but most of the EITC problems are apparent problems of fact (is this your child? does this child live with you?) rather than this kind.

stjohnswarts 4y ago

Probably because they don't have the accountants to cover up and cook the books like the 1%, I don't think it's because of "criminal tendencies" of that income bracket like some would claim.