5 ms·

The IRS disproportionately audits people who are eligible for the EITC. These people almost uniformly don't have assets worth hiding, but they still wind up pay

by poink 4y ago

The IRS disproportionately audits people who are eligible for the EITC. These people almost uniformly don't have assets worth hiding, but they still wind up paying fines in many cases because tax law is intentionally complicated. Much hay is made about how Intuit et al prevent this stuff from happening, and that's true, but the government itself has a very real incentive here. This is the easiest money they can get, as evidenced by the fact it's what the IRS goes after when it's "chronically underfunded." Why would they willingly give it up by making compliance easier?

sbelskie 4y ago
Why is “chronically underfunded” in quotes?
- gtop3 4y ago
  I don't know. I don't think the IRS keeps any of the money it collects.
- poink 4y ago
  Because if the IRS maximized its "let's automatically do your taxes for you" ability, it would eliminate all the inadvertent violators, reducing the enforcement requirements. If the government really got on the stick and stopped trying to reduce every issue to the correct set of tax incentives/penalties, we could make the tax code something regular people (or, at least, less than a suite of specialized accountants) could understand. This would simplify both compliance _and_ enforcement. I want the IRS to have enough resources to do its job thoroughly, but we give them $13.7b/yr already. I have a hard time believing we couldn't do the job for that if the policy were sane.
  - enraged_camel 4y ago
    >> Because if the IRS maximized its "let's automatically do your taxes for you" ability, it would eliminate all the inadvertent violators, reducing the enforcement requirements. It would also drastically reduce IRS's own costs, though.
    - lilsoso 4y ago
      Reductions in the size of the service? The whole idea is... It strikes at the very roots of... It's the beginning of the end! The thin end of the wedge!
  - sbelskie 4y ago
    “Already” feels like it’s doing a lot of the work there. The budget had been decreasing for most (the entirety?) of the last decade and only recently was increased: https://www.cbpp.org/research/federal-tax/the-need-to-rebuild-the-depleted-irs https://www.cbpp.org/research/federal-tax/the-need-to-rebuil... But overall, I agree that way too much of federal policy is doled out as tax credits/deductions/penalties or what have you, but there are other reasons for that, which for me have little bearing on whether the IRS should be properly funded enough to after the biggest tax cheats.
    - poink 4y ago
      Seems like the argument here is whether "properly funded" for the IRS should stipulate a sane tax code. I'm fine with temporarily juicing the IRS's budget to whatever if it means we go after more tax cheats and get more revenue (I understand that the IRS is fundamentally productive re: the government's budget), but I also know that an organization never willingly gives up budget, and $13.7b isn't small potatoes, even for the US. Feels like we could do the job for that, all other problems being solved. (FWIW, the IRS could easily go after "the biggest tax cheats" right now. They don't need $13.7b to do that. They don't go after them because they're maximizing revenue, which I understand, but it's not like their choice of targets makes a material difference in our deficit, and I'm very worried that giving them more money will just give them more resources to "maximize revenue" and they'll simply never get to "the biggest tax cheats" because they'll never have "enough" revenue)
  - adgjlsfhk1 4y ago
    like on the one hand, 13B is a lot, but on the other hand that works out to roughly $12 per person which isn't a ton if you want to actually investigate any non trivial percent of them.
    - rebuilder 4y ago
      Surely the IRS isn’t handling the taxes from nearly a billion people?
      - adgjlsfhk1 4y ago
        oops, midnight math. call it 350mil people do $50ish per?
        pclmulqdq 4y ago
        Far too much given that the VAST majority of people turn in a 1099-EZ and have no special tax circumstances. Adding w-2s, that's a total of about 10 pages.
        ac29 4y ago
        The 1040-EZ hasnt existed in years
        dragonwriter 4y ago
        > Far too much given that the VAST majority of people turn in a 1099-EZ You are thinking of the 1040EZ which, along with the 1040A, was eliminated a while back (6 years ago, IIRC) in favor of making to the 1040 modular (but then the 1040-SR for seniors was added, which kind of reverses that policy direction.)
      - lattalayta 4y ago
        It's 12 per person after the taxes are taken out ;)
    - poink 4y ago
  - kelnos 4y ago
    > Because if the IRS maximized its "let's automatically do your taxes for you" ability Unfortunately, they are legally barred from doing that. Thank Intuit and the tax-prep lobby for making people (and, most importantly, Congress) believe that doing taxes is supposed to be hard, annoying, in-your-face work. Because apparently if it was streamlined, it would somehow make people complacent and accept (or not even notice) increased taxes. Yes, corporate propaganda can tell people they are stupid and lazy, and they not only believe it, but believe it's their patriotic duty to believe it.
  - simplotek 4y ago
    > Because if the IRS maximized its "let's automatically do your taxes for you" ability, it would eliminate all the inadvertent violators, reducing the enforcement requirements. What power does the IRS have to automatically do anyone's taxes? Not only would that require laws to change, which the IRS does not have the ability to change, but it would also require access to a huge amount of private info fed either by private citizens or corporations.
    - true_religion 4y ago
      Many people just have all their income come from sources that file with the IRS already (e.g. W2 filers) and they take the standard deduction. What amount of private information would be necessarily added? The proposal is the IRS should propose that they tax you at X rate, and you only file if you disagree. So if you have deductions they can’t know of, then you file.
    - LinuxBender 4y ago
      I have complicated taxes. The CPA's at the lawfirm I use request my tax data from the IRS then compare it to the tax documents from assorted firms I deal with and then just plug it all in again into a form that looks like what the IRS sent them but signed by a different party then they submit it. Even with my complicated mess it could be 100% automated, or perhaps 99.999% and I just press an "Acceptable" or "Dispute" button after they did it if such an interface existed. Every time I've had to engage lawyers with the IRS it has been a mistake of 3rd party firms neglecting to give me a missing form or page usually after mergers. Only once have I've had them accept something was incorrect after battling the IRS and to even break even on that one I would have to take a financial firm to court. The IRS should be going after the 3rd party firms that flubbed their documents, not me. It's a steamy hot mess. Since the discussion is about budget it is also worth noting the IRS have its own courts, lawyers, judges that operate entirely independent of the rest of the legal system. They even have summer breaks and if one has an issue it may sit in a queue for several months or years. I just closed out 2020 and that was a simple error.
seattle_spring 4y ago
I'd love to see the actual reasons these folks end up getting fined. The amount of lower income folks I've met who have claimed to have "written off" their vehicle by driving for Uber once is too damn high.
- kelnos 4y ago
  I suspect these people are exaggerating, or are making up stories to make it sound like they "stuck it to the man". It's pretty trivial for the IRS to figure out that a vehicle fully deducted for business use is not actually being used for business use. I'm sure this is even the sort of thing that they have automated software to flag.
- digdugdirk 4y ago
  ... Is this a joke? Or do you actually believe that the IRS should prioritize their resources on catching poor people trying to skirt taxes on hourly work over wealthy people and corporations that use/abuse the system at the expense of the population of the planet?
  - pclmulqdq 4y ago
    How about both? Which is what happens, by the way. People with 7 digits on their tax return get audited a LOT. Low-income people get audited more than people with 6-figure incomes, but they also arguably have lower levels of tax compliance too. And I have no interest in incentivizing low-income people to cheat on taxes - that will just result in them voting for more taxes that they can cheat on and impose on the rest of us.
Arborealist 4y ago
They audit people who are eligible for EITC because they trivially know what most of them make / how much credit they qualify for and can have an algorithm tell them fraud is present with almost 100% accuracy. If you want more handouts for the poor then vote for it. Don’t blame the IRS for enforcing the tax code. They should audit anyone and everyone fraudulently filing.
- peter422 4y ago
  So you are saying that in the majority of these cases the fraud is intentional and not accidental? The point being the IRS can completely solve accidental mistakes but just telling everybody what they owe instead of forcing them to calculate it themselves.
  - Gigachad 4y ago
    I assume a fair bit would be people claiming deductions they aren’t actually entitled to like expenses for driving to work.
  - Arborealist 4y ago
    [flagged]
    - Johnny555 4y ago
      If the poor are paying fines because they are making accidental mistakes on their tax returns when the IRS already has the numbers that they expect them to fill in on their forms, then how is that not the IRS unfairly targeting the poor? What is fair about fining people for inadvertently writing down the wrong number or doing arithmetic incorrectly?
      - notch898a 4y ago
        People eligible for EITC rarely are handling stacks of 1099 and business transactions. We're talking about single mom with a couple part time jobs with a W-2 territory. The idea their taxes should have mistakes more than average seems a bit far-fetched to me. That said maybe it is cheaper and easier just to eliminate the EITC/taxes/filing for people earning under X. It seems like a waste to even bother with people making under 20 or 30 grand.
edmundsauto 4y ago
Assuming “they” in the last sentence is the IRS, they would make it easier because they are an arm of society, and we as society should incentivize making it worse for cheats in big dollars and less punitive for honest or naive mistakes at a smaller scale. We do not have that society but that is my direct answer.
IncRnd 4y ago
From https://www.taxpayeradvocate.irs.gov/news/nta-blog-eitc-audits-will-once-again-begin-proactively-responding-to-an-eitc-audit-is-crucial/ https://www.taxpayeradvocate.irs.gov/news/nta-blog-eitc-audi... > One study with the most recent data available from the IRS showed that 21 percent of known EITC errors (meaning an error identified during an audit with full taxpayer participation) were attributable to qualifying child rules; 58 percent of the errors were tied to income misreporting; and nine percent contained both errors. > Qualifying child errors account for the most dollars of erroneous claims by far. Of the qualifying child errors, 20 percent involved the relationship test, ten percent related to the age test, and 75 percent involved residency. Income misreporting – and in particular self-employment income misreporting – accounts for the second highest dollar amount of erroneous claims.
- pclmulqdq 4y ago
  The TL;DR version is that people lie about still having kids who depend on them and about "under-the-table" income.
yieldcrv 4y ago
Another thing is that the IRS is an adversary, until you’re rich, then they’re a collaborator when you’re not rich, this adversarial assumption leads people to actually hide money. like “oh wow I’ve never been in a situation where my employer isn't automatically snitching on me, guess I wont report and just worry incessantly about venmo payments over $600 for the next decade!”
- pclmulqdq 4y ago
  The IRS is always your adversary, but the people who write the tax code become your friends at a certain point.
  - yieldcrv 4y ago
    nah that’s another level deeper, playing with politicians and public sector employees the IRS simply does far more than enforcement, at a certain point it switches from hiding from the IRS, to filing and hoping you arent picked for scrutiny, to informing the IRS ways you wont pay them taxes (ie. 83b elections, S-corp designation, 5500 for tax deferred plans), to collaborating with the IRS on not paying taxes (ie. 501(c)X non-profit approval, Advance Pricing Agreements)
    - pclmulqdq 4y ago
      I think about that kind of thing as the lawmakers being your friend (but perhaps unintentionally), not the IRS. Those forms are a gentle "fuck you" to the IRS, enabled by congress.
      - yieldcrv 4y ago
        The IRS unilaterally makes the forms, unilaterally makes the guidance, offers private letter rulings that can be in favor of one taxpayer, can unilaterally offer tax exemptions, to the point where you would think the Internal Revenue Service isn’t even interested in revenue collection The passionate overzealous people in the audits and enforcement division are just one part of the IRS, thats my point There are some very obscure areas of the IRS with pleasant people just waiting for attention to help you with a less used part of the tax code
wwweston 4y ago
IRS workers goals will largely be around statutory/policy compliance rather than maximization. And government “incentives” are different from usual — if they really want more money they can pass different laws. Where there’s a bone to pick with IRS behavior, the cause is the people who write the laws, congress. Their incentives are different too. And it turns out if you want to spread anti-tax sentiment, one thing you might do is cooperate with the lobby for making filing itself a difficult and danger-fraught process.
kelnos 4y ago
> This is the easiest money they can get, as evidenced by the fact it's what the IRS goes after when it's "chronically underfunded." You do realize that the IRS doesn't get to keep the extra tax money it manages to collect via audits, right? That money goes to the treasury, the same as if it was correctly paid in the first place. I did some digging on where penalties go, and didn't find anything conclusive, but there was a CBO report on IRS enforcement that listed penalties and collected tax as "revenue", which usually means that it goes to the treasury, not directly to a particular agency.
- jedberg 4y ago
  Yes but the IRS is rated on how much they bring in vs how much they spend. When they go to congress to justify their budget, they talk about their multiple.
- poink 4y ago
  What would "get[s] to keep the extra tax money" even mean in the context of the government? Bonuses for the employees? It's Monopoly money as far as I'm concerned. It's the criteria they're evaluated on. It's the driver behind every "for every $X you spend on the IRS the government gets $Y" talking point that legitimizes making the organization more/less powerful. It's the thing the organization is trying to maximize, and that's the rationale they give for where they target their current enforcement.

by poink 4y ago

sbelskie 4y ago

Why is “chronically underfunded” in quotes?

gtop3 4y ago
I don't know. I don't think the IRS keeps any of the money it collects.
poink 4y ago
Because if the IRS maximized its "let's automatically do your taxes for you" ability, it would eliminate all the inadvertent violators, reducing the enforcement requirements. If the government really got on the stick and stopped trying to reduce every issue to the correct set of tax incentives/penalties, we could make the tax code something regular people (or, at least, less than a suite of specialized accountants) could understand. This would simplify both compliance _and_ enforcement. I want the IRS to have enough resources to do its job thoroughly, but we give them $13.7b/yr already. I have a hard time believing we couldn't do the job for that if the policy were sane.
- enraged_camel 4y ago
  >> Because if the IRS maximized its "let's automatically do your taxes for you" ability, it would eliminate all the inadvertent violators, reducing the enforcement requirements. It would also drastically reduce IRS's own costs, though.
  - lilsoso 4y ago
    Reductions in the size of the service? The whole idea is... It strikes at the very roots of... It's the beginning of the end! The thin end of the wedge!
- sbelskie 4y ago
  “Already” feels like it’s doing a lot of the work there. The budget had been decreasing for most (the entirety?) of the last decade and only recently was increased: https://www.cbpp.org/research/federal-tax/the-need-to-rebuild-the-depleted-irs https://www.cbpp.org/research/federal-tax/the-need-to-rebuil... But overall, I agree that way too much of federal policy is doled out as tax credits/deductions/penalties or what have you, but there are other reasons for that, which for me have little bearing on whether the IRS should be properly funded enough to after the biggest tax cheats.
  - poink 4y ago
    Seems like the argument here is whether "properly funded" for the IRS should stipulate a sane tax code. I'm fine with temporarily juicing the IRS's budget to whatever if it means we go after more tax cheats and get more revenue (I understand that the IRS is fundamentally productive re: the government's budget), but I also know that an organization never willingly gives up budget, and $13.7b isn't small potatoes, even for the US. Feels like we could do the job for that, all other problems being solved. (FWIW, the IRS could easily go after "the biggest tax cheats" right now. They don't need $13.7b to do that. They don't go after them because they're maximizing revenue, which I understand, but it's not like their choice of targets makes a material difference in our deficit, and I'm very worried that giving them more money will just give them more resources to "maximize revenue" and they'll simply never get to "the biggest tax cheats" because they'll never have "enough" revenue)
- adgjlsfhk1 4y ago
  like on the one hand, 13B is a lot, but on the other hand that works out to roughly $12 per person which isn't a ton if you want to actually investigate any non trivial percent of them.
  - rebuilder 4y ago
    Surely the IRS isn’t handling the taxes from nearly a billion people?
    - adgjlsfhk1 4y ago
      oops, midnight math. call it 350mil people do $50ish per?
      - pclmulqdq 4y ago
        Far too much given that the VAST majority of people turn in a 1099-EZ and have no special tax circumstances. Adding w-2s, that's a total of about 10 pages.
        ac29 4y ago
        The 1040-EZ hasnt existed in years
        dragonwriter 4y ago
        > Far too much given that the VAST majority of people turn in a 1099-EZ You are thinking of the 1040EZ which, along with the 1040A, was eliminated a while back (6 years ago, IIRC) in favor of making to the 1040 modular (but then the 1040-SR for seniors was added, which kind of reverses that policy direction.)
    - lattalayta 4y ago
      It's 12 per person after the taxes are taken out ;)
  - poink 4y ago
- kelnos 4y ago
  > Because if the IRS maximized its "let's automatically do your taxes for you" ability Unfortunately, they are legally barred from doing that. Thank Intuit and the tax-prep lobby for making people (and, most importantly, Congress) believe that doing taxes is supposed to be hard, annoying, in-your-face work. Because apparently if it was streamlined, it would somehow make people complacent and accept (or not even notice) increased taxes. Yes, corporate propaganda can tell people they are stupid and lazy, and they not only believe it, but believe it's their patriotic duty to believe it.
- simplotek 4y ago
  > Because if the IRS maximized its "let's automatically do your taxes for you" ability, it would eliminate all the inadvertent violators, reducing the enforcement requirements. What power does the IRS have to automatically do anyone's taxes? Not only would that require laws to change, which the IRS does not have the ability to change, but it would also require access to a huge amount of private info fed either by private citizens or corporations.
  - true_religion 4y ago
    Many people just have all their income come from sources that file with the IRS already (e.g. W2 filers) and they take the standard deduction. What amount of private information would be necessarily added? The proposal is the IRS should propose that they tax you at X rate, and you only file if you disagree. So if you have deductions they can’t know of, then you file.
  - LinuxBender 4y ago
    I have complicated taxes. The CPA's at the lawfirm I use request my tax data from the IRS then compare it to the tax documents from assorted firms I deal with and then just plug it all in again into a form that looks like what the IRS sent them but signed by a different party then they submit it. Even with my complicated mess it could be 100% automated, or perhaps 99.999% and I just press an "Acceptable" or "Dispute" button after they did it if such an interface existed. Every time I've had to engage lawyers with the IRS it has been a mistake of 3rd party firms neglecting to give me a missing form or page usually after mergers. Only once have I've had them accept something was incorrect after battling the IRS and to even break even on that one I would have to take a financial firm to court. The IRS should be going after the 3rd party firms that flubbed their documents, not me. It's a steamy hot mess. Since the discussion is about budget it is also worth noting the IRS have its own courts, lawyers, judges that operate entirely independent of the rest of the legal system. They even have summer breaks and if one has an issue it may sit in a queue for several months or years. I just closed out 2020 and that was a simple error.

seattle_spring 4y ago

I'd love to see the actual reasons these folks end up getting fined. The amount of lower income folks I've met who have claimed to have "written off" their vehicle by driving for Uber once is too damn high.

kelnos 4y ago
I suspect these people are exaggerating, or are making up stories to make it sound like they "stuck it to the man". It's pretty trivial for the IRS to figure out that a vehicle fully deducted for business use is not actually being used for business use. I'm sure this is even the sort of thing that they have automated software to flag.
digdugdirk 4y ago
... Is this a joke? Or do you actually believe that the IRS should prioritize their resources on catching poor people trying to skirt taxes on hourly work over wealthy people and corporations that use/abuse the system at the expense of the population of the planet?
- pclmulqdq 4y ago
  How about both? Which is what happens, by the way. People with 7 digits on their tax return get audited a LOT. Low-income people get audited more than people with 6-figure incomes, but they also arguably have lower levels of tax compliance too. And I have no interest in incentivizing low-income people to cheat on taxes - that will just result in them voting for more taxes that they can cheat on and impose on the rest of us.

Arborealist 4y ago

They audit people who are eligible for EITC because they trivially know what most of them make / how much credit they qualify for and can have an algorithm tell them fraud is present with almost 100% accuracy. If you want more handouts for the poor then vote for it. Don’t blame the IRS for enforcing the tax code. They should audit anyone and everyone fraudulently filing.

peter422 4y ago
So you are saying that in the majority of these cases the fraud is intentional and not accidental? The point being the IRS can completely solve accidental mistakes but just telling everybody what they owe instead of forcing them to calculate it themselves.
- Gigachad 4y ago
  I assume a fair bit would be people claiming deductions they aren’t actually entitled to like expenses for driving to work.
- Arborealist 4y ago
  [flagged]
  - Johnny555 4y ago
    If the poor are paying fines because they are making accidental mistakes on their tax returns when the IRS already has the numbers that they expect them to fill in on their forms, then how is that not the IRS unfairly targeting the poor? What is fair about fining people for inadvertently writing down the wrong number or doing arithmetic incorrectly?
    - notch898a 4y ago
      People eligible for EITC rarely are handling stacks of 1099 and business transactions. We're talking about single mom with a couple part time jobs with a W-2 territory. The idea their taxes should have mistakes more than average seems a bit far-fetched to me. That said maybe it is cheaper and easier just to eliminate the EITC/taxes/filing for people earning under X. It seems like a waste to even bother with people making under 20 or 30 grand.

edmundsauto 4y ago

Assuming “they” in the last sentence is the IRS, they would make it easier because they are an arm of society, and we as society should incentivize making it worse for cheats in big dollars and less punitive for honest or naive mistakes at a smaller scale. We do not have that society but that is my direct answer.

IncRnd 4y ago

From https://www.taxpayeradvocate.irs.gov/news/nta-blog-eitc-audits-will-once-again-begin-proactively-responding-to-an-eitc-audit-is-crucial/ https://www.taxpayeradvocate.irs.gov/news/nta-blog-eitc-audi... > One study with the most recent data available from the IRS showed that 21 percent of known EITC errors (meaning an error identified during an audit with full taxpayer participation) were attributable to qualifying child rules; 58 percent of the errors were tied to income misreporting; and nine percent contained both errors. > Qualifying child errors account for the most dollars of erroneous claims by far. Of the qualifying child errors, 20 percent involved the relationship test, ten percent related to the age test, and 75 percent involved residency. Income misreporting – and in particular self-employment income misreporting – accounts for the second highest dollar amount of erroneous claims.

pclmulqdq 4y ago
The TL;DR version is that people lie about still having kids who depend on them and about "under-the-table" income.

yieldcrv 4y ago

Another thing is that the IRS is an adversary, until you’re rich, then they’re a collaborator when you’re not rich, this adversarial assumption leads people to actually hide money. like “oh wow I’ve never been in a situation where my employer isn't automatically snitching on me, guess I wont report and just worry incessantly about venmo payments over $600 for the next decade!”

pclmulqdq 4y ago
The IRS is always your adversary, but the people who write the tax code become your friends at a certain point.
- yieldcrv 4y ago
  nah that’s another level deeper, playing with politicians and public sector employees the IRS simply does far more than enforcement, at a certain point it switches from hiding from the IRS, to filing and hoping you arent picked for scrutiny, to informing the IRS ways you wont pay them taxes (ie. 83b elections, S-corp designation, 5500 for tax deferred plans), to collaborating with the IRS on not paying taxes (ie. 501(c)X non-profit approval, Advance Pricing Agreements)
  - pclmulqdq 4y ago
    I think about that kind of thing as the lawmakers being your friend (but perhaps unintentionally), not the IRS. Those forms are a gentle "fuck you" to the IRS, enabled by congress.
    - yieldcrv 4y ago
      The IRS unilaterally makes the forms, unilaterally makes the guidance, offers private letter rulings that can be in favor of one taxpayer, can unilaterally offer tax exemptions, to the point where you would think the Internal Revenue Service isn’t even interested in revenue collection The passionate overzealous people in the audits and enforcement division are just one part of the IRS, thats my point There are some very obscure areas of the IRS with pleasant people just waiting for attention to help you with a less used part of the tax code

wwweston 4y ago

IRS workers goals will largely be around statutory/policy compliance rather than maximization. And government “incentives” are different from usual — if they really want more money they can pass different laws. Where there’s a bone to pick with IRS behavior, the cause is the people who write the laws, congress. Their incentives are different too. And it turns out if you want to spread anti-tax sentiment, one thing you might do is cooperate with the lobby for making filing itself a difficult and danger-fraught process.

kelnos 4y ago

> This is the easiest money they can get, as evidenced by the fact it's what the IRS goes after when it's "chronically underfunded." You do realize that the IRS doesn't get to keep the extra tax money it manages to collect via audits, right? That money goes to the treasury, the same as if it was correctly paid in the first place. I did some digging on where penalties go, and didn't find anything conclusive, but there was a CBO report on IRS enforcement that listed penalties and collected tax as "revenue", which usually means that it goes to the treasury, not directly to a particular agency.

jedberg 4y ago
Yes but the IRS is rated on how much they bring in vs how much they spend. When they go to congress to justify their budget, they talk about their multiple.
poink 4y ago
What would "get[s] to keep the extra tax money" even mean in the context of the government? Bonuses for the employees? It's Monopoly money as far as I'm concerned. It's the criteria they're evaluated on. It's the driver behind every "for every $X you spend on the IRS the government gets $Y" talking point that legitimizes making the organization more/less powerful. It's the thing the organization is trying to maximize, and that's the rationale they give for where they target their current enforcement.