4 ms·

IRS Audits Few Millionaires but Targeted Many Low-Income Families in FY 2022

58 points by Jimmc414 4y ago

Jimmc414 4y ago
"These results are based on internal IRS management reports released each month to the Transactional Records Access Clearinghouse (TRAC) at Syracuse University under a court order entered after successful litigation under the Freedom of Information Act."
bhhaskin 4y ago
This is a non-issue. Millionaire are far more likely to have a accountant/tax professional. Which would of course means they would have all the required documentation at the time of filling. What would be interesting is the percentage of tax fraud going on in these different brackets.
- cm2187 4y ago
  Also auditing regular employees is trivial if not fully automatable, so you would expect a larger proportion of them to be audited.
  - psychphysic 4y ago
    Finally there are many more poor people than millionaires.
    - cm2187 4y ago
      yeah but they are comparing auditing rates per 1000
  - nine_zeros 4y ago
    > Also auditing regular employees is trivial if not fully automatable, so you would expect a larger proportion of them to be audited. Because nickel and diming the poor using automation helps hit audit metrics easier than actually unraveling the complex tax law on multi-millionaire filings.
    - cm2187 4y ago
      The "poors" don't fill tax returns. And yes the middle class is a big mass compared to multi-million fillings.
- deleted 4y ago
  [deleted]
- dsr_ 4y ago
  If your hypothesis is true, then million-dollar income tax statements are easier to audit than hundred-k income tax statements. If it's 5x harder to audit someone who made a million dollars than someone who made 100,000, it's still worth auditing two of the million-dollar returns for every 100K return.
  - nwah1 4y ago
    It isn't about difficulty. It is about compliance. People who haven't complied with the law for their filings are going to get targeted more.
  - s1artibartfast 4y ago
    >If it's 5x harder to audit someone who made a million dollars than someone who made 100,000, it's still worth auditing two of the million-dollar returns for every 100K return. Why is it equivalent worth? Shouldn't that have to do with the level of fraud discovered and taxes recovered? Many of the errors in low income filings are incredibly easy to detect. Think 1000x easier, and automated. These are things like two parents claiming the same dependent with the same SSN.
- themagician 4y ago
  It's not that they have documentation as much as it is that the tax code is more subjective for high earners that run businesses, because what is an isn't a legitimate business expenses or R&D or whatever is not always clear cut, and the tax code gives a good amount of leeway. And even when it doesn't give much leeway, it's still a lot of work for the IRS to prove their case unless the fraud was explicit and deliberate. The tax code is this way on purpose. It's designed to encourage businesses and people to spend.
- tonfreed 4y ago
  I wouldn't say it's a non issue, it highlights a significant problem in the tax code.
skee8383 4y ago
Corrupt country ran by the rich oppresses the poor. what else is new.
PopAlongKid 4y ago
See also: https://news.ycombinator.com/item?id=34279187 https://news.ycombinator.com/item?id=34279187
kneebonian 4y ago
so here's the thing about taxes and money. Is that right now our government is acting under the principles of MMT, Modern Monetary Theory, basically the idea is that since the government is using fiat currency anyway it doesn't even really needs taxes since it can just print more. As such taxes no longer are about funding the government but about controlling inflation. Whether or not that is feasible or a good idea is a different discussion. But the basic idea is since we have a fiat currency (that is also a world reserve currency) we don't actually need taxes to fun our government because we can just print more, and that the purpose of taxes is controlling inflation by removing money from the monetary supply. (which also means that inflation is essentially a stealth tax that disproportionately effects those who do not own assets since inflation causes asset value to increase) Now this also means that under MMT there is an interesting knock off effect that I've only recently realized. Taxes do more than just control inflation in MMT they allow you to target who to take money from to control inflation, and you can target particular groups of people, in part to punish or reward them. Now there is one more step from this that those who own assets benefit the most form inflation; however if they also are not taxed appropriately this results in wealth concentrations as the wealthiest benefit from the stealth inflation tax, while at the same time gaining if the taxes are not used to target them. Again, setting aside whether or not MMT is real, useful, wise, good, etc. If we accept the logic of MMT we also then accept this fact. That by not targeting the richest we are effectively using the barrel of a government gun to redistribute wealth from largely the middle class to the elite.
- JustSomeNobody 4y ago
  > Taxes do more than just control inflation in MMT they allow you to target who to take money from to control inflation, and you can target particular groups of people, in part to punish or reward them. Yes, taxes have always been a way of controlling behavior. Want people to stop smoking, tax cigs. Want people to buy their kids school supplies? Stop taxing those items.
mochomocha 4y ago
Seeing the GOP trying to repeal the IRS funding boost as soon as they have majority in the House, it's hard not to become cynical about how corrupt our politicians are. The latest CBO report [1] estimates that extra IRS funding has an ROI of 5 to 9. [1]: https://www.cbo.gov/publication/57444 https://www.cbo.gov/publication/57444
- anigbrowl 4y ago
  Doubly so given that they simply don't have the political leverage to repeal the policy in question over the preferences of the Senate or incumbent administration. This is less of a policy goal than a campaign issue designed for pay off in the 2024 election.
- yucky 4y ago
  But based on this study showing that the IRS spends their time and money making life worse for low and middle class taxpayers...why would we want to give them more money and resources to do that? Maybe there is a great ROI on going after people who can't afford it, but that doesn't make it's a good thing. I would rather those who need it, have it vs giving more money to Raytheon and Northrop Grumman for our war machine.
  - mochomocha 4y ago
    Because enforcing the law is the basis of a functioning society? If citizens don't like the laws, it's in their power to change that (assuming of course a functioning democracy where elected officials are not just vessels for corporate & wealthy people's will). Promoting the non-enforcement of the law is both immoral and erodes the foundations of a civilized society.
    - yucky 4y ago
      I think promoting the non-enforcement of garbage laws is a benefit to society. Just a few years ago things like weed, gay marriage etc. were all illegal, so supporting them just because they're laws is silly.
PopAlongKid 4y ago
>highly automated processes to send letters through the mail (a “correspondence audit”) These are not correspondence audits. Those involve a Revenue Agent on the other end, not a computer-generated letter. The article completely misses the point that auditing a wealthy person for tax evasion (not paying all tax on their income) is very different from auditing Earned Income Credit recipients. In the latter case, they are not looking for mis-reported income, they are trying to prevent fraud in a welfare program mandated by Congress for the IRS to carry out via the tax system. It actually has little to do with taxes in most cases.
anigbrowl 4y ago
It's interesting to note how one political party leans heavily on scare stories of '87,000 IRS agents coming to audit YOU' and empty promises to undo this, when the reality is that the IRS has been funded to hire that number of people over 10 years and most of them will just be doing normal processing aimed at getting people's tax refunds issued faster. Of course, those scare stories are aimed at an audience comprised of relatively wealthy donors/influencers and relatively credulous but vocal voters.
gnicholas 4y ago
When I was studying tax law in law school, I remember learning that the earned income tax credit (commonly "EITC", but referred to in the report as the "anti-poverty earned income credit") is notorious for being filed incorrectly at a very high rate. This is due to the complexity of the credit and the fact that the people who are eligible are less likely to have a paid tax preparer. On its face, this article looks like it has "discovered" that people who claim the EITC are audited at a much higher rate than other people. This is not news to anyone who works in tax or tax policy. It would be different if they had shown that the EITC audits were not warranted — that would be very newsworthy. But if they are auditing people and finding that there are mistakes that need to be fixed, that's not evidence of wrongdoing. It could be evidence that the EITC should be simplified — something that tax policy folks have been saying for a long time.
- laweijfmvo 4y ago
  On the other hand, I'm going to bet that the richer you are, the more likely it is you have an accountant making sure you dot every i and cross every t, including all the legal loopholes they can find for you. People get upset because they think the IRS should be auditing millionaires that used loopholes to pay less than them, but that's a feature, not a bug.

58 points by Jimmc414 4y ago

"These results are based on internal IRS management reports released each month to the Transactional Records Access Clearinghouse (TRAC) at Syracuse University under a court order entered after successful litigation under the Freedom of Information Act."

bhhaskin 4y ago

This is a non-issue. Millionaire are far more likely to have a accountant/tax professional. Which would of course means they would have all the required documentation at the time of filling. What would be interesting is the percentage of tax fraud going on in these different brackets.

cm2187 4y ago
Also auditing regular employees is trivial if not fully automatable, so you would expect a larger proportion of them to be audited.
- psychphysic 4y ago
  Finally there are many more poor people than millionaires.
  - cm2187 4y ago
    yeah but they are comparing auditing rates per 1000
- nine_zeros 4y ago
  > Also auditing regular employees is trivial if not fully automatable, so you would expect a larger proportion of them to be audited. Because nickel and diming the poor using automation helps hit audit metrics easier than actually unraveling the complex tax law on multi-millionaire filings.
  - cm2187 4y ago
    The "poors" don't fill tax returns. And yes the middle class is a big mass compared to multi-million fillings.
deleted 4y ago
[deleted]
dsr_ 4y ago
If your hypothesis is true, then million-dollar income tax statements are easier to audit than hundred-k income tax statements. If it's 5x harder to audit someone who made a million dollars than someone who made 100,000, it's still worth auditing two of the million-dollar returns for every 100K return.
- nwah1 4y ago
  It isn't about difficulty. It is about compliance. People who haven't complied with the law for their filings are going to get targeted more.
- s1artibartfast 4y ago
  >If it's 5x harder to audit someone who made a million dollars than someone who made 100,000, it's still worth auditing two of the million-dollar returns for every 100K return. Why is it equivalent worth? Shouldn't that have to do with the level of fraud discovered and taxes recovered? Many of the errors in low income filings are incredibly easy to detect. Think 1000x easier, and automated. These are things like two parents claiming the same dependent with the same SSN.
themagician 4y ago
It's not that they have documentation as much as it is that the tax code is more subjective for high earners that run businesses, because what is an isn't a legitimate business expenses or R&D or whatever is not always clear cut, and the tax code gives a good amount of leeway. And even when it doesn't give much leeway, it's still a lot of work for the IRS to prove their case unless the fraud was explicit and deliberate. The tax code is this way on purpose. It's designed to encourage businesses and people to spend.
tonfreed 4y ago
I wouldn't say it's a non issue, it highlights a significant problem in the tax code.

skee8383 4y ago

Corrupt country ran by the rich oppresses the poor. what else is new.

PopAlongKid 4y ago

See also: https://news.ycombinator.com/item?id=34279187 https://news.ycombinator.com/item?id=34279187

kneebonian 4y ago

so here's the thing about taxes and money. Is that right now our government is acting under the principles of MMT, Modern Monetary Theory, basically the idea is that since the government is using fiat currency anyway it doesn't even really needs taxes since it can just print more. As such taxes no longer are about funding the government but about controlling inflation. Whether or not that is feasible or a good idea is a different discussion. But the basic idea is since we have a fiat currency (that is also a world reserve currency) we don't actually need taxes to fun our government because we can just print more, and that the purpose of taxes is controlling inflation by removing money from the monetary supply. (which also means that inflation is essentially a stealth tax that disproportionately effects those who do not own assets since inflation causes asset value to increase) Now this also means that under MMT there is an interesting knock off effect that I've only recently realized. Taxes do more than just control inflation in MMT they allow you to target who to take money from to control inflation, and you can target particular groups of people, in part to punish or reward them. Now there is one more step from this that those who own assets benefit the most form inflation; however if they also are not taxed appropriately this results in wealth concentrations as the wealthiest benefit from the stealth inflation tax, while at the same time gaining if the taxes are not used to target them. Again, setting aside whether or not MMT is real, useful, wise, good, etc. If we accept the logic of MMT we also then accept this fact. That by not targeting the richest we are effectively using the barrel of a government gun to redistribute wealth from largely the middle class to the elite.

JustSomeNobody 4y ago
> Taxes do more than just control inflation in MMT they allow you to target who to take money from to control inflation, and you can target particular groups of people, in part to punish or reward them. Yes, taxes have always been a way of controlling behavior. Want people to stop smoking, tax cigs. Want people to buy their kids school supplies? Stop taxing those items.

mochomocha 4y ago

Seeing the GOP trying to repeal the IRS funding boost as soon as they have majority in the House, it's hard not to become cynical about how corrupt our politicians are. The latest CBO report [1] estimates that extra IRS funding has an ROI of 5 to 9. [1]: https://www.cbo.gov/publication/57444 https://www.cbo.gov/publication/57444

anigbrowl 4y ago
Doubly so given that they simply don't have the political leverage to repeal the policy in question over the preferences of the Senate or incumbent administration. This is less of a policy goal than a campaign issue designed for pay off in the 2024 election.
yucky 4y ago
But based on this study showing that the IRS spends their time and money making life worse for low and middle class taxpayers...why would we want to give them more money and resources to do that? Maybe there is a great ROI on going after people who can't afford it, but that doesn't make it's a good thing. I would rather those who need it, have it vs giving more money to Raytheon and Northrop Grumman for our war machine.
- mochomocha 4y ago
  Because enforcing the law is the basis of a functioning society? If citizens don't like the laws, it's in their power to change that (assuming of course a functioning democracy where elected officials are not just vessels for corporate & wealthy people's will). Promoting the non-enforcement of the law is both immoral and erodes the foundations of a civilized society.
  - yucky 4y ago
    I think promoting the non-enforcement of garbage laws is a benefit to society. Just a few years ago things like weed, gay marriage etc. were all illegal, so supporting them just because they're laws is silly.

PopAlongKid 4y ago

>highly automated processes to send letters through the mail (a “correspondence audit”) These are not correspondence audits. Those involve a Revenue Agent on the other end, not a computer-generated letter. The article completely misses the point that auditing a wealthy person for tax evasion (not paying all tax on their income) is very different from auditing Earned Income Credit recipients. In the latter case, they are not looking for mis-reported income, they are trying to prevent fraud in a welfare program mandated by Congress for the IRS to carry out via the tax system. It actually has little to do with taxes in most cases.

anigbrowl 4y ago

It's interesting to note how one political party leans heavily on scare stories of '87,000 IRS agents coming to audit YOU' and empty promises to undo this, when the reality is that the IRS has been funded to hire that number of people over 10 years and most of them will just be doing normal processing aimed at getting people's tax refunds issued faster. Of course, those scare stories are aimed at an audience comprised of relatively wealthy donors/influencers and relatively credulous but vocal voters.

gnicholas 4y ago

When I was studying tax law in law school, I remember learning that the earned income tax credit (commonly "EITC", but referred to in the report as the "anti-poverty earned income credit") is notorious for being filed incorrectly at a very high rate. This is due to the complexity of the credit and the fact that the people who are eligible are less likely to have a paid tax preparer. On its face, this article looks like it has "discovered" that people who claim the EITC are audited at a much higher rate than other people. This is not news to anyone who works in tax or tax policy. It would be different if they had shown that the EITC audits were not warranted — that would be very newsworthy. But if they are auditing people and finding that there are mistakes that need to be fixed, that's not evidence of wrongdoing. It could be evidence that the EITC should be simplified — something that tax policy folks have been saying for a long time.

laweijfmvo 4y ago
On the other hand, I'm going to bet that the richer you are, the more likely it is you have an accountant making sure you dot every i and cross every t, including all the legal loopholes they can find for you. People get upset because they think the IRS should be auditing millionaires that used loopholes to pay less than them, but that's a feature, not a bug.