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IRS audits poorest families at five times the rate for everyone else

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Re: IRS audits poorest families at five times the rate for everyone else

#11

Post by NovemberWhiskey »

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?

Re: IRS audits poorest families at five times the rate for everyone else

#12

Post by trebbble »

pilgrimfff wrote: post #4

This just doesn’t make sense from a financial standpoint. It seems doubtful the money recovered covers the cost of the audits.

From the article:

> A large increase in federal income tax audits targeting the poorest wage earners allowed the Internal Revenue Service to keep overall audit numbers from further declines for Americans as a whole during FY 2021.

I'm guessing low-income people are, for a bunch of reasons including having simpler finances and ~no ability to hire legal counsel or other outside help, way cheaper to audit than those with more money are.

This passage suggests they shifted focus there to keep their total-audits number from dropping even further. The IRS is experiencing a many-years-long deliberately-inflicted severe staffing shortage. IOW this was probably done to keep a metric someone cared about from dropping without requiring more funding, not because it's efficient or just or anything like that.

Re: IRS audits poorest families at five times the rate for everyone else

#13

Post by nonameiguess »

josephcsible wrote: post #2

There's one statistic that I didn't see but I'm now really curious about: what percentage of audits discover irregularities, per income level? If lower-income people are more likely than average to cheat on their taxes, then it makes sense to audit them more, but if they don't, then this is indeed totally unfair.

Not sure that really follows. Is the goal of the audit to punish the maximum number of people or recover the maximum amount of money? If the latter, then it doesn't make much sense to spend most of your effort assessing $400 penalties.

Re: IRS audits poorest families at five times the rate for everyone else

#14

Post by mannykannot »

This may explain why (it is from the National Taxpayer Advocate Erin M. Collins' annual report to congress):

The IRS correspondence audit process is structured to expend the least amount of resources to conduct the largest number of examinations – resulting in the lowest level of customer service to taxpayers having the greatest need for assistance.

Re: IRS audits poorest families at five times the rate for everyone else

#15

Post by shemnon42 »

Is this really a fallout that the poorest families are more than five times more likely to do their own taxes instead of hiring a tax professional? Most audits are to account for sloppy bookkeeping or not attaching the correct documentation, not uncovering tax fraud schemes. (but many good tax fraud schemes look like bad bookkeeping, to be fair).

Re: IRS audits poorest families at five times the rate for everyone else

#16

Post by jwarden »

graton wrote: post #6

As the article states the "audits" are for the most part (~85% of the time) a letter sent to the person asking them to provide documentation for something. I would think most people think of an audit as having to meet in person with an IRS representative going over their taxes.

The author of the article asks "Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us?" But he has only established that the IRS sends more of these letters to the (self-reported) poorest taxpayers, and not that they actually spend more of their limited firepower on them.

Re: IRS audits poorest families at five times the rate for everyone else

#17

Post by inanutshellus »

PsySecGroup wrote: post #3

Curious timing given the expansion of the IRS. EDIT: why is this getting down voted?

If I were wealthy enough to be /actually/ affected by the IRS expansion (400k+/yr) it would be a wise investment to spread articles like this to make sure The People are as against the IRS expansion as possible.

I'm curious what the avg income level of your downvoters is... ;-)

Re: IRS audits poorest families at five times the rate for everyone else

#18

Post by Scoundreller »

kevinventullo wrote: post #5
josephcsible wrote: post #2

There's one statistic that I didn't see but I'm now really curious about: what percentage of audits discover irregularities, per income level? If lower-income people are more likely than average to cheat on their taxes, then it makes sense to audit them more, but if they don't, then this is indeed totally unfair.

Also, the whole point is that they may in fact not be as low income as they claim!

Would make more sense if they looked at IRS audit rates by zip code.

Re: IRS audits poorest families at five times the rate for everyone else

#19

Post by albatross13 »

trebbble wrote: post #12
pilgrimfff wrote: post #4

This just doesn’t make sense from a financial standpoint. It seems doubtful the money recovered covers the cost of the audits.

From the article: > A large increase in federal income tax audits targeting the poorest wage earners allowed the Internal Revenue Service to keep overall audit numbers from further declines for Americans as a whole during FY 2021. I'm guessing low-income people are, for a bunch of reasons including having simpler finances and ~no ability to hire legal counsel or other outside help, way cheaper to audit than those wit…

>without requiring more funding

I might be missing something here, but are you disregarding the 80bn the IRS just got for another 87,000 auditors? Or are we talking funding for something else?

Re: IRS audits poorest families at five times the rate for everyone else

#20

Post by washbrain »

This seems to have a statistical backing to me:

I'd assume lower income folks take less time to audit than wealthy folks. I'd also assume there are more low income than high income people. My final assumption is that the IRS will start a new audit when they complete one, rather than just wait.

Imagine then two auditors, both selecting random tax returns. One pulls a wealthy return, the other pulls a low income return.

The person auditing the wealthy return spends two months working on theirs. The low income return is audited in a week. The auditor then pulls a second return, also low income. This one takes a week, so they pull another, also low income.

You can see the pattern here - it's not malicious (though it may be a systemic injustice), it's an outcome of statistics playing out in unintended ways.

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