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I am presuming that you are letting off (perfectly understandable) steam, but lest someone take your statements seriously, allow me to be some cold water here. My bona fides here are that I am a 10+ year seasonal tax preparer and SINCERELY am doing this work for the clients & coworkers and not for the money. As an Enrolled Agent, I spend mucho hours prepping for the tax season and always breath a big sigh of relief on April 20th or so.

First and most important thing about the IRS - You are legally assumed to be guilty until you PROVE your innocence! The IRS will run you through the wringer if they notice you so the object is not to be noticed!

Second: As creaking and as bad as the IRS technology is, their ability to match paperwork is constantly improving. Failure to account for any and all of the tax forms received will start the IRS on noticing you! The more money that is involved in the missing info increases the interest.

Third: Remember that the IRS has the right to query tax returns up to 3 years back (open years) AND LONGER if fraud (willful tax cheating) is possible (in their eyes!) The IRS runs on the FUD (fear, uncertainty and doubt) concept and WILL MAKE YOUR LIFE MISERABLE if you get crosswise with them. Penalties are not just financial, look up Wesley Snipes and see what his prison sentence was.

I HATE OUR MONSTER TAX SYSTEM, it is a disgrace and an all too powerful tool in the hands of our enemy, the bigger government crowd. Every government bureaucrat should be REQUIRED to do their own return without any assistance, computer or advice. The common argument that “Ignorance is no excuse” FAILS in the light of the legal liabilities foisted upon the common citizen facing an ever increasing tax code and regulations!

I don't question the ability of the IRS to cross-check tax records among different filers. I learned this a few years ago when I got a letter from the IRS informing me that I owed an additional $36,000 in taxes, interest and penalties because I allegedly failed to report an early withdrawal from a retirement account. After several letters with plenty of explicit documentation I ended up owing $0 (a 1099 form had been incorrectly filed by a third-party administrator when I rolled an IRA into another tax-deferred retirement account).

My point was that the IRS would have a difficult time verifying the existence and status of "household members" in cases where everyone is meeting the letter of the law entirely.

Since you're an Enrolled Agent, I'll post this question to you:

Suppose I'm the owner of a home where four people live (myself and three others), and that all four of us file our tax returns separately. For the sake of this discussion, I'll call these two unmarried working adults (I'm one of these), one retired parent, and one adult child. Under the U.S. tax code, would I be legally permitted to sign lease agreements with the three other adults in the house and have the four of us list ourselves as unattached members of different "households?" I would document their nominal rent payments and report them as income on my tax return, of course.