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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

#51

Post by marwatk »

moomin wrote: post #23
NovemberWhiskey wrote: post #11

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…

They ignore much larger sums. The real reason they’re targeted is that, quite simply, they’re unable to fight back. It’s the equivalent of searching for your keys under the streetlight.

This is addressed in the article:

> A critical limitation in the IRS’s ability to audit millionaires is the availability of IRS revenue agents. Only this class of auditors, given sufficient training and experience, are qualified to examine complex tax returns – the types of returns typically filed by high-income individuals and large-scale businesses.

> With severe budget constraints, IRS has tended to trade off the replacement of revenue agents with hiring more tax examiners. These certainly are paid less, but they are also less knowledgeable. While revenue agents used to outnumber tax examiners, this has slowly shifted over time.

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

#52

Post by enterthematrix »

tomohawk wrote: post #44

And we're now going to get 87,000 more auditors. This is the largest increase in the federal police force (they are all armed) ever. The politicos are already dancing around this saying how "middle class" people will not have an increased chance of audit.

Fundamentally if you just pay your taxes, you shouldn't be audited (ideally.) That being said... an increase in auditors is net good because then the IRS can actually audit some of the massive number of tax crimes that occur. This is good.

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

#53

Post by singlow »

josephcsible wrote: post #21
oneplane wrote: post #8

Earlier quoted context omitted.

If we were to try to assess fairness, wouldn't it make sense to also take effects and side-effects into account? Say a disproportionate amount of poor families cheat, but also end up on the street after an audit, either not able to pay any outstanding taxes, or having paid them and no longer being able to afford a roof over their head. At the same time, while breaking the law should be the same for everyone else, wou…

There's a big difference between acknowledging that you owe taxes but not paying them, and lying that you don't owe taxes when you really do. I can only sympathize with people who do the former, and these audits are all about catching the latter.

The audits also catch a lot of cases where people don't know how to file anything beyond their basic employer withholdings. If a poorer, less educated person gets a 1099 for a side job or does an early withdrawal from their IRA, they are likely to fail to report it properly, or pay the required taxes. This is not usually intentional, they just don't know better. Even if they know they have to pay taxes on the money, they don't realize that the IRS didn't already take their cut just like they do from a paycheck.

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

#54

Post by thrdbndndn »

moralestapia wrote: post #50
AnimalMuppet wrote: post #42

Earlier quoted context omitted.

> They ignore much larger sums. Source? What category of stuff the IRS ignores adds up to more than $20 billion?

Bit of a tangent but, why $20BUSD?

>EITC errors/fraud cost the public purse $10-20bn a year

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

#55

Post by JumpCrisscross »

NovemberWhiskey wrote: post #11

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…

> reason for this is almost entirely the Earned Income Tax Credit

"As a lower bound, about half of the spike [in operational audit selection rate on the lower end of the income spectrum apparent in 2014] is explained by EITC-eligibility-related projects" [1].

[1] https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204

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

#56

Post by alistairSH »

washbrain wrote: post #20

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…

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.

Probably true.

But purely from a revenue perspective, I wonder if larger emphasis on the rich would pay better dividends? Over half the audits are for returns with incomes less than $25,000. Even if there's a problem, the amount of recoverable money is really low. Even though most of those are "correspondence audits" (done via letter instead of face-to-face) somebody still hast to review any new documentation.

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

#57

Post by googlryas »

singlow wrote: post #53
josephcsible wrote: post #21

Earlier quoted context omitted.

There's a big difference between acknowledging that you owe taxes but not paying them, and lying that you don't owe taxes when you really do. I can only sympathize with people who do the former, and these audits are all about catching the latter.

The audits also catch a lot of cases where people don't know how to file anything beyond their basic employer withholdings. If a poorer, less educated person gets a 1099 for a side job or does an early withdrawal from their IRA, they are likely to fail to report it properly, or pay the required taxes. This is not usually intentional, they just don't know better. Even if they know they have to pay taxes on the money,…

True, and the IRS is fairly reasonable about understanding when something is intentional or unintentional when levying fines and setting out payment plans.

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

#58

Post by missedthecue »

marwatk wrote: post #31
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.

> IRS accomplished over 650 thousand audits last year by jacking up its already high reliance on so called “correspondence audits” – essentially a letter from the IRS asking for documentation on a specific line item on a return. I can't imagine those are very expensive.

~19 cents in postage and a few cents more for the envelope and letter.

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

#59

Post by NovemberWhiskey »

moralestapia wrote: post #50
AnimalMuppet wrote: post #42

Earlier quoted context omitted.

> They ignore much larger sums. Source? What category of stuff the IRS ignores adds up to more than $20 billion?

Bit of a tangent but, why $20BUSD?

$20bn is the estimated annual cost of fraudulent or otherwise improper Earned Income Tax Credits, which is the primary audit scope for low-income tax payers.

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

#60

Post by shkkmo »

albatross13 wrote: post #19
trebbble wrote: post #12

Earlier quoted context omitted.

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?

That is funding that has just been allocated, the results of that funding obviously won't be seen in data that predates that funding..
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