4 ms·

The ultra-rich are largely law-abiding and have the paperwork to prove it. What should be concerning is the new reporting requirements on virtually any $600 tr

by LanceH 4y ago

The ultra-rich are largely law-abiding and have the paperwork to prove it. What should be concerning is the new reporting requirements on virtually any $600 transaction combined with 30k more IRS staff.

mikeyouse 4y ago
People have a really simplistic view of what wealthy "compliant" tax returns look like. There is a massive amount of tax fraud at the wealthiest levels -- but since the IRS rarely prosecutes, people just assume the returns are merely avoidance instead of evasion. Look at what's come out from Trump's historical tax returns -- literally tens (if not hundreds?) of millions of dollars in tax fraud that was just never prosecuted. Had the authorities looked before the statute of limitations had elapsed, there would have likely been criminal charges. https://www.nytimes.com/interactive/2018/10/02/us/politics/donald-trump-tax-schemes-fred-trump.html https://www.nytimes.com/interactive/2018/10/02/us/politics/d... https://www.propublica.org/article/trump-inc-podcast-never-before-seen-trump-tax-documents-show-major-inconsistencies https://www.propublica.org/article/trump-inc-podcast-never-b... This isn't "some people say" territory - it's just blatant fraud that went unprosecuted and it happens all the time.
- themagician 4y ago
  The IRS rarely prosecutes high earners because it's expensive and it's possible they fail. Once you get out of simple W2 and 1099 income things get real complicated real fast. So complicated the IRS can get it wrong themselves. The more complicated the return, the more subjective they become. When the rules are so complex or the terms so vague that things can be left up to interpretation or they do not capture all edge cases it becomes very easy to end up in a scenario where you have to prove intent to commit fraud if you really want to prosecute. There is no doubt that the IRS leaves plenty of money on the table by not pursuing more high earners, but who wants to do the hard work when the easy work is just to compare reported W2 and 1099 income statements with returns? If we wanted to get serious about going after high earners we would simplify the tax code. We'd get rid of certain carry overs all together. At some point we may even tax revenue instead of profits. That might sound wildly "anti-capitalist" but it's the only way to eliminate the ambiguity. We could create different incentives that reverse the burden. I can think of a funny example I saw the other day where some dope was telling people they can deduct their dog as a business expense if they work from home because the dog is a "guard dog". The thing is you actually can do this. If you do this with any old dog it obviously would not hold up… but where is the line? How much training does a dog need to be considered a guard dog? How many hours a day is the dog actually guarding? You going to interview the dog? What if the dog dies or runs away? The IRS is not going to scrutinize every dog. There are a ridiculous amount of things just like this that people write off as expenses. If you want to successfully prosecute you've got to really make the case that it was intentional—like that there was no dog at all. Otherwise it's just difficult, and there's so much lower hanging fruit. You want to go back and forth over a dog with or just go after this person who failed to report a PayPal transaction? The latter is so much easier. Guaranteed win.
  - chii 4y ago
    > you've got to really make the case that it was intentional—like that there was no dog at all which would be easy, as an animal ought to have been registered and thus have a registration from which an easy check should've been possible. If the tax code deems that expenses such as a guard dog is something that can be deducted, then why is the nuance relevant at all? It's a dog, and it does guarding duties during business hours. Whether it performed the guarding duties well or not is also irrelevant - the expense of a dog would be the same whether they do guarding well, or sloppily. So the only opportunity for such fraud is if the dog didn't exist, and thus you're not really paying the expenses associated with said dog. I fail to see why having a dog and being able to expense it from your income is such a big deal. Edit: in fact, i personally would like to see the tax code simplified, so that each human can claim _all_ expenses for living, from their income, and only ever get taxed on profits (which is money they did not consume).
EMM_386 4y ago
> The ultra-rich are largely law-abiding and have the paperwork to prove it. Oh really? "Credit Suisse, the collapsed Swiss bank taken over by UBS Group in a hastily arranged bailout earlier this month, may bring with it a fresh set of regulatory and legal problems for its new owner. For years, the bank has provided a safe haven for wealthy American clients to hide assets from the IRS — even after it was caught and prosecuted for doing the same thing more than a decade ago" Many will take whatever opportunity they can get. Whether its complex offshore structures or moving it to banks that will greet you with a wink and a nod. As long as it doesn't go to the IRS. I'm not saying all wealthy individuals do this, or even most. But the amount of money that is intentionally hidden from the IRS is incredibly substantial. They have done the studies.
jltsiren 4y ago
"Law-abiding" is not a binary concept. There are some activities that clearly abide by the law, and there are some activities that clearly break the law. But there is also a wide gray between the extremes, where it can be difficult to determine what the law actually is without going to court. The best practices for tax planning deliberately go into the gray area, because there is money to be made in the expected case. Even if you are audited and found breaking the law, the consequences are rarely that severe. But the same reasons that make going into the gray zone profitable in tax planning also make it profitable to audit people who practice tax planning.
pastor_bob 4y ago
>The ultra-rich are largely law-abiding and have the paperwork to prove it. Just because they have receipts of their expensed 'business' dinners and 'client' trips to Disney World doesn't mean they're not fraudulent
NickC25 4y ago
They are "largely law-abiding" because collectively, they've bought the ability to call their actions law-abiding. Warren Buffet pays a smaller % of his income in tax than he secretary does, and he's said that himself. You know how that's possible? Because Buffet and people like him bought off the government ages ago and, collectively, said to the IRS "we're going to tell you what we are going to pay, and you're going to deal with it, OK?", and continually lobby congress and say that whatever minuscule amount they actually do pay is WAY too high and needs to be cut, and cut again.
- amanaplanacanal 4y ago
  His income is probably mostly capital gains, which are taxed at a lower rate than earned income. There are reasons for that which economists can discuss, I have no opinion myself.
- s1artibartfast 4y ago
  >Warren Buffet pays a smaller % of his income in tax than he secretary does, and he's said that himself You say that like it should be shocking, but I don't see why that would be the expectation. You could easily come at it from the opposite direction and wonder why Buffet pays so much more than his secretary in dollar terms, yet they get the same police, roads, schools, and public services.
  - chii 4y ago
    It's because the argument comes not from rational thought, but first from ideology - that the richer person _should_ bear a higher burden (which they do, but just not percentage wise compared to their total wealth or income). Then they find examples of such, and use it as evidence. Buffett pays less in %, because he is not earning wage labour. That's not tax fraud, nor is it illegal.
- itsdrewmiller 4y ago
  https://en.wikipedia.org/wiki/Buffett_Rule https://en.wikipedia.org/wiki/Buffett_Rule Buffett specifically believes that this is bad and his taxes should be higher.
andrepd 4y ago
Even before tax evasion, the wealthiest 0.1% pay proportionally less taxes than everyone else.
- chii 4y ago
  But they pay more taxes in absolute terms than everyone else. Why is proportional comparison relevant?

by LanceH 4y ago

mikeyouse 4y ago

People have a really simplistic view of what wealthy "compliant" tax returns look like. There is a massive amount of tax fraud at the wealthiest levels -- but since the IRS rarely prosecutes, people just assume the returns are merely avoidance instead of evasion. Look at what's come out from Trump's historical tax returns -- literally tens (if not hundreds?) of millions of dollars in tax fraud that was just never prosecuted. Had the authorities looked before the statute of limitations had elapsed, there would have likely been criminal charges. https://www.nytimes.com/interactive/2018/10/02/us/politics/donald-trump-tax-schemes-fred-trump.html https://www.nytimes.com/interactive/2018/10/02/us/politics/d... https://www.propublica.org/article/trump-inc-podcast-never-before-seen-trump-tax-documents-show-major-inconsistencies https://www.propublica.org/article/trump-inc-podcast-never-b... This isn't "some people say" territory - it's just blatant fraud that went unprosecuted and it happens all the time.

themagician 4y ago
The IRS rarely prosecutes high earners because it's expensive and it's possible they fail. Once you get out of simple W2 and 1099 income things get real complicated real fast. So complicated the IRS can get it wrong themselves. The more complicated the return, the more subjective they become. When the rules are so complex or the terms so vague that things can be left up to interpretation or they do not capture all edge cases it becomes very easy to end up in a scenario where you have to prove intent to commit fraud if you really want to prosecute. There is no doubt that the IRS leaves plenty of money on the table by not pursuing more high earners, but who wants to do the hard work when the easy work is just to compare reported W2 and 1099 income statements with returns? If we wanted to get serious about going after high earners we would simplify the tax code. We'd get rid of certain carry overs all together. At some point we may even tax revenue instead of profits. That might sound wildly "anti-capitalist" but it's the only way to eliminate the ambiguity. We could create different incentives that reverse the burden. I can think of a funny example I saw the other day where some dope was telling people they can deduct their dog as a business expense if they work from home because the dog is a "guard dog". The thing is you actually can do this. If you do this with any old dog it obviously would not hold up… but where is the line? How much training does a dog need to be considered a guard dog? How many hours a day is the dog actually guarding? You going to interview the dog? What if the dog dies or runs away? The IRS is not going to scrutinize every dog. There are a ridiculous amount of things just like this that people write off as expenses. If you want to successfully prosecute you've got to really make the case that it was intentional—like that there was no dog at all. Otherwise it's just difficult, and there's so much lower hanging fruit. You want to go back and forth over a dog with or just go after this person who failed to report a PayPal transaction? The latter is so much easier. Guaranteed win.
- chii 4y ago
  > you've got to really make the case that it was intentional—like that there was no dog at all which would be easy, as an animal ought to have been registered and thus have a registration from which an easy check should've been possible. If the tax code deems that expenses such as a guard dog is something that can be deducted, then why is the nuance relevant at all? It's a dog, and it does guarding duties during business hours. Whether it performed the guarding duties well or not is also irrelevant - the expense of a dog would be the same whether they do guarding well, or sloppily. So the only opportunity for such fraud is if the dog didn't exist, and thus you're not really paying the expenses associated with said dog. I fail to see why having a dog and being able to expense it from your income is such a big deal. Edit: in fact, i personally would like to see the tax code simplified, so that each human can claim _all_ expenses for living, from their income, and only ever get taxed on profits (which is money they did not consume).

EMM_386 4y ago

> The ultra-rich are largely law-abiding and have the paperwork to prove it. Oh really? "Credit Suisse, the collapsed Swiss bank taken over by UBS Group in a hastily arranged bailout earlier this month, may bring with it a fresh set of regulatory and legal problems for its new owner. For years, the bank has provided a safe haven for wealthy American clients to hide assets from the IRS — even after it was caught and prosecuted for doing the same thing more than a decade ago" Many will take whatever opportunity they can get. Whether its complex offshore structures or moving it to banks that will greet you with a wink and a nod. As long as it doesn't go to the IRS. I'm not saying all wealthy individuals do this, or even most. But the amount of money that is intentionally hidden from the IRS is incredibly substantial. They have done the studies.

jltsiren 4y ago

"Law-abiding" is not a binary concept. There are some activities that clearly abide by the law, and there are some activities that clearly break the law. But there is also a wide gray between the extremes, where it can be difficult to determine what the law actually is without going to court. The best practices for tax planning deliberately go into the gray area, because there is money to be made in the expected case. Even if you are audited and found breaking the law, the consequences are rarely that severe. But the same reasons that make going into the gray zone profitable in tax planning also make it profitable to audit people who practice tax planning.

pastor_bob 4y ago

>The ultra-rich are largely law-abiding and have the paperwork to prove it. Just because they have receipts of their expensed 'business' dinners and 'client' trips to Disney World doesn't mean they're not fraudulent

NickC25 4y ago

They are "largely law-abiding" because collectively, they've bought the ability to call their actions law-abiding. Warren Buffet pays a smaller % of his income in tax than he secretary does, and he's said that himself. You know how that's possible? Because Buffet and people like him bought off the government ages ago and, collectively, said to the IRS "we're going to tell you what we are going to pay, and you're going to deal with it, OK?", and continually lobby congress and say that whatever minuscule amount they actually do pay is WAY too high and needs to be cut, and cut again.

amanaplanacanal 4y ago
His income is probably mostly capital gains, which are taxed at a lower rate than earned income. There are reasons for that which economists can discuss, I have no opinion myself.
s1artibartfast 4y ago
>Warren Buffet pays a smaller % of his income in tax than he secretary does, and he's said that himself You say that like it should be shocking, but I don't see why that would be the expectation. You could easily come at it from the opposite direction and wonder why Buffet pays so much more than his secretary in dollar terms, yet they get the same police, roads, schools, and public services.
- chii 4y ago
  It's because the argument comes not from rational thought, but first from ideology - that the richer person _should_ bear a higher burden (which they do, but just not percentage wise compared to their total wealth or income). Then they find examples of such, and use it as evidence. Buffett pays less in %, because he is not earning wage labour. That's not tax fraud, nor is it illegal.
itsdrewmiller 4y ago
https://en.wikipedia.org/wiki/Buffett_Rule https://en.wikipedia.org/wiki/Buffett_Rule Buffett specifically believes that this is bad and his taxes should be higher.

andrepd 4y ago

Even before tax evasion, the wealthiest 0.1% pay proportionally less taxes than everyone else.

chii 4y ago
But they pay more taxes in absolute terms than everyone else. Why is proportional comparison relevant?