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> You're saying auditing megacorps is hard, but somehow more staff won't help? I don't buy it. It's not so much that it's hard, it's that it has a lower return

> You're saying auditing megacorps is hard, but somehow more staff won't help? I don't buy it. It's not so much that it's hard, it's that it has a lower return on investment, because the IRS gets money from finding mistakes or intentional fraud. Megacorps have entire legal teams dedicated to preventing those things from happening, while lowering their taxes by finding lawful ways of reducing their taxes to almost nothing by pouring over the unfathomable complexity of the tax code to find obscure credits or chain together the right sequence of things so their profits end up in a jurisdiction where they're not taxed. If you audit them you spend an enormous amount of resources because their accounts are so complicated and then only get money if they screwed up, which they're less likely to have done than someone with fewer lawyers, and even then it will typically be something like you found a credit they weren't allowed to take and they owe $50,000 but the thing where they have a hundred billion in revenue and 0.2% of that in taxable profit was all by the book. Meanwhile smaller entities are far more likely to have screwed up because they have fewer resources to navigate the complexity of the tax code, and their accounts are less complicated, which makes it easier for the IRS to find mistakes and therefore get money. So if you give the IRS more resources and tell them to do audits to maximize recovery, those are the people they audit. But that also involves auditing a ton of individuals and small businesses who didn't do anything wrong in order to find the ones that did, and they rightfully hate that because nobody is paying them for the actual costs of the audit where the IRS found nothing, which is why they keep lobbying to stop the IRS from getting more resources to do that to them. And if the IRS had to pay the taxpayer's side of the audit costs then their "recovery efficiency rate" would go way down.

bdangubic 8mo ago
> It's not so much that it's hard, it's that it has a lower return on investment, because the IRS gets money from finding mistakes or intentional fraud.... Isn't this exactly what all megacorps are hoping for everyone thinks? I am not saying that you are wrong but these megacorps are some of the most evil the Civilization has ever seen (see Meta) and now you and I are hired as tax attorneys - pretty soon (if not right away) one of us will go "this shit's very much so illegal but who is actually going to audit us? - the answer, per your comment is basically no one because we think these megacorps and their lawyers are there to play by the book...
- AnthonyMouse 8mo ago
  In order for that to make sense to them, it would have to be impossible for them to avoid paying taxes without breaking the law, but the very nature of applying "corporate income tax" to an international supply chain makes that relatively straightforward. The general problem is this. You have a company with its headquarters in Ireland that designs a product in California, manufactures it in China and sells it in Germany. In which country did they make a profit and therefore owe taxes? It depends on what each subsidiary bought from the others and how much they paid, so they're going to structure their operations so that the profit ends up in the one with the lowest taxes. That's the defect in "corporate income tax" for international companies, and why it gives international companies an advantage over domestic ones. In order to fix that you need a tax code that says the taxes have to be paid to the country where whatever subset of their operations you want to tax is actually present. But then it's not "corporate income tax" anymore. If you want to tax them in the location they have workers it's payroll tax, if it's where they have buildings it's property tax, if it's where they have customers it's VAT, etc. You need it to be something they can't so easily move out of your jurisdiction. Because if you say that it's profit then they'll just arrange to make their profits in Ireland or Bermuda.
  - oarsinsync 8mo ago
    Or the US could tax it's corporations just like it taxes it's citizens. Doesn't care that the citizens pay tax in whatever country they live in. If they earn over some 6 figure sum, they have to pay tax in the US as well. That would put US corporations at a distinct disadvantage on the global scene, so it won't happen. Disadvantaging citizens doesn't seem to matter as much.
    - AnthonyMouse 8mo ago
      The thing the US does to its citizens is bizarre and atypical and it should stop doing that. But how would that even work for a corporation? Suppose you did that; is anything multinational going to remain a US corporation? Of course not, they'll just register in some other country. The CEO of Stellantis nee Chrysler is in Michigan but how many people can guess which country the corporation is registered in without looking it up?
loeg 8mo ago
This is a moved set of goalposts from the comment I responded to -- and we know that, because the original author had already confirmed that replying to me before your comment: https://news.ycombinator.com/item?id=47139400 https://news.ycombinator.com/item?id=47139400 .
- AnthonyMouse 8mo ago
  Both of those comments are making a consistent argument: It's easier (and I would add more cost effective) to target smaller taxpayers, so that's what the IRS typically does when given more resources.
jandrese 8mo ago
> It's not so much that it's hard, it's that it has a lower return on investment, because the IRS gets money from finding mistakes or intentional fraud. Megacorps have entire legal teams dedicated to preventing those things from happening Or: Megacorps have entire teams of people looking for ways to reduce their taxes, many of which are legally dubious but the risk of being caught * the size of the fine means it makes business sense to do it regardless of legality.
- thaumasiotes 8mo ago
  No, that's a contradiction of your parent comment. In your model, doing more audits would increase "the risk of being caught" and have good ROI.
- AnthonyMouse 8mo ago
  > Megacorps have entire teams of people looking for ways to reduce their taxes, many of which are legally dubious but the risk of being caught * the size of the fine means it makes business sense to do it regardless of legality. "Legally dubious" is the problem, because ambiguous laws are supposed to be interpreted most favorably to the defendant rather than the government, and then all parties have to incur much higher costs because the ambiguity means it goes to litigation, and there is a significant chance that all of those resources are consumed and it comes out in favor of the corporation in the end. The IRS much prefers to find cases where the taxpayer is clearly violating the law.
  - jandrese 8mo ago
    If someday we get some kind of supergenius congress that can write laws that are unambiguous and have no loopholes then this won't be a problem. Until then there will be a constant back and forth between people who want to fund things with tax revenue and people who don't want to pay taxes about how to interpret the wording.
    - AnthonyMouse 8mo ago
      That's not the problem in this case. There is no one complaining about corporations avoiding their property tax or payroll tax. When Walmart collects sales tax, they're not finding some loophole that allows them to keep the money themselves instead of remitting it to the government, because that isn't really a thing. The problem is specifically a structural defect in the way corporate income tax works for multinational corporations, because it's nominally a tax on profit. But unlike workers or land or customers, that isn't a thing with a physical location and that gives the corporations an unlimited number of ways to move it around so it ends up where they want it, which is in a place where they pay the least in tax. It's not a matter of writing the law better. When you use that type of tax, the ambiguity is in the facts. If their global profit margin is e.g. 15% and you can't measure the fair market value of the things the subsidiaries in one country buy from a subsidiary in another with a smaller margin of error than that, they can shift all of their profits to wherever they want. There is no reasonable way to fix it while still using that type of tax because it's not possible to measure the fair market value of everything with enough precision that they can't manipulate the outcome. You have to use a different type of tax instead, but then people don't do that and complain about the inevitable result.

bdangubic 8mo ago

> It's not so much that it's hard, it's that it has a lower return on investment, because the IRS gets money from finding mistakes or intentional fraud.... Isn't this exactly what all megacorps are hoping for everyone thinks? I am not saying that you are wrong but these megacorps are some of the most evil the Civilization has ever seen (see Meta) and now you and I are hired as tax attorneys - pretty soon (if not right away) one of us will go "this shit's very much so illegal but who is actually going to audit us? - the answer, per your comment is basically no one because we think these megacorps and their lawyers are there to play by the book...

AnthonyMouse 8mo ago
In order for that to make sense to them, it would have to be impossible for them to avoid paying taxes without breaking the law, but the very nature of applying "corporate income tax" to an international supply chain makes that relatively straightforward. The general problem is this. You have a company with its headquarters in Ireland that designs a product in California, manufactures it in China and sells it in Germany. In which country did they make a profit and therefore owe taxes? It depends on what each subsidiary bought from the others and how much they paid, so they're going to structure their operations so that the profit ends up in the one with the lowest taxes. That's the defect in "corporate income tax" for international companies, and why it gives international companies an advantage over domestic ones. In order to fix that you need a tax code that says the taxes have to be paid to the country where whatever subset of their operations you want to tax is actually present. But then it's not "corporate income tax" anymore. If you want to tax them in the location they have workers it's payroll tax, if it's where they have buildings it's property tax, if it's where they have customers it's VAT, etc. You need it to be something they can't so easily move out of your jurisdiction. Because if you say that it's profit then they'll just arrange to make their profits in Ireland or Bermuda.
- oarsinsync 8mo ago
  Or the US could tax it's corporations just like it taxes it's citizens. Doesn't care that the citizens pay tax in whatever country they live in. If they earn over some 6 figure sum, they have to pay tax in the US as well. That would put US corporations at a distinct disadvantage on the global scene, so it won't happen. Disadvantaging citizens doesn't seem to matter as much.
  - AnthonyMouse 8mo ago
    The thing the US does to its citizens is bizarre and atypical and it should stop doing that. But how would that even work for a corporation? Suppose you did that; is anything multinational going to remain a US corporation? Of course not, they'll just register in some other country. The CEO of Stellantis nee Chrysler is in Michigan but how many people can guess which country the corporation is registered in without looking it up?

loeg 8mo ago

This is a moved set of goalposts from the comment I responded to -- and we know that, because the original author had already confirmed that replying to me before your comment: https://news.ycombinator.com/item?id=47139400 https://news.ycombinator.com/item?id=47139400 .

AnthonyMouse 8mo ago
Both of those comments are making a consistent argument: It's easier (and I would add more cost effective) to target smaller taxpayers, so that's what the IRS typically does when given more resources.

jandrese 8mo ago

> It's not so much that it's hard, it's that it has a lower return on investment, because the IRS gets money from finding mistakes or intentional fraud. Megacorps have entire legal teams dedicated to preventing those things from happening Or: Megacorps have entire teams of people looking for ways to reduce their taxes, many of which are legally dubious but the risk of being caught * the size of the fine means it makes business sense to do it regardless of legality.

thaumasiotes 8mo ago
No, that's a contradiction of your parent comment. In your model, doing more audits would increase "the risk of being caught" and have good ROI.
AnthonyMouse 8mo ago
> Megacorps have entire teams of people looking for ways to reduce their taxes, many of which are legally dubious but the risk of being caught * the size of the fine means it makes business sense to do it regardless of legality. "Legally dubious" is the problem, because ambiguous laws are supposed to be interpreted most favorably to the defendant rather than the government, and then all parties have to incur much higher costs because the ambiguity means it goes to litigation, and there is a significant chance that all of those resources are consumed and it comes out in favor of the corporation in the end. The IRS much prefers to find cases where the taxpayer is clearly violating the law.
- jandrese 8mo ago
  If someday we get some kind of supergenius congress that can write laws that are unambiguous and have no loopholes then this won't be a problem. Until then there will be a constant back and forth between people who want to fund things with tax revenue and people who don't want to pay taxes about how to interpret the wording.
  - AnthonyMouse 8mo ago
    That's not the problem in this case. There is no one complaining about corporations avoiding their property tax or payroll tax. When Walmart collects sales tax, they're not finding some loophole that allows them to keep the money themselves instead of remitting it to the government, because that isn't really a thing. The problem is specifically a structural defect in the way corporate income tax works for multinational corporations, because it's nominally a tax on profit. But unlike workers or land or customers, that isn't a thing with a physical location and that gives the corporations an unlimited number of ways to move it around so it ends up where they want it, which is in a place where they pay the least in tax. It's not a matter of writing the law better. When you use that type of tax, the ambiguity is in the facts. If their global profit margin is e.g. 15% and you can't measure the fair market value of the things the subsidiaries in one country buy from a subsidiary in another with a smaller margin of error than that, they can shift all of their profits to wherever they want. There is no reasonable way to fix it while still using that type of tax because it's not possible to measure the fair market value of everything with enough precision that they can't manipulate the outcome. You have to use a different type of tax instead, but then people don't do that and complain about the inevitable result.