Because there is no such law providing for such reparations, the IRS rejects such claims. Taxpayers who repeatedly file claims after receiving a denial notice are subject to a $500 penalty for filing a frivolous tax return.
Posted on 03/04/2002 3:18:20 PM PST by vannrox
I.R.S. Audits of Working Poor Increase
By DAVID CAY JOHNSTON
WASHINGTON, Feb. 28 — The Internal Revenue Service sharply increased audits of the working poor last year, while reducing to record low levels those of the highest-income Americans and big companies, new data showed today.
Because audits for the working poor increased 48.6 percent, the overall audit rate for individuals rose for the first time since 1995, to 1 in every 174 income tax returns, from 1 in 202 in 2000.
On the strength of the increase of audits of the working poor, the commissioner of internal revenue, Charles O. Rossotti, who released the data, said that he had generally stopped a long-term decline in efforts to ensure that taxpayers obeyed the law.
In 2001, the I.R.S. audited 403,506 tax returns that were filed by the working poor who applied for the earned-income tax credit and 295,002 filed by others. Another 33,324 audits involved people who failed to file tax returns.
For the working poor who sought the tax credit, the odds of being audited were 1 in 315, while for everyone else, the odds were 1 in 431.
Audits of the working poor accounted for 55 percent of all audits last year, reflecting the policy set in 1996 by Republican Congressional leaders with the agreement of President Bill Clinton.
The most important kind of audits, face-to-face meetings of taxpayers and I.R.S. agents, which generally produce the most additional tax revenue, declined again last year. They fell to a record low of 1 in 625 taxpayers, down from 1 in 500 in 2000 and 1 in 63 two decades ago.
Most significant was the decline in audits of those making $100,000 or more, which fell to a record low of 1 in 208 last year, down from 1 in 164 in 2000 and 1 in 9 in 1988.
The roughly 5 percent of taxpayers who make more than $100,000 pay more than half of all income taxes. Such taxpayers also have the greatest opportunities to shortchange the government because they receive most of the nonwage income.
While the I.R.S. receives reports from employers on how much each worker makes, income from capital gains, rents, partnerships and other forms of income common to those with high incomes are not subject to the same rigorous reporting rules. Proceeds from the sale of stock, for example, are reported to the I.R.S., but Congress trusts each taxpayer to accurately report what he paid for the stock.
Audits of corporations also fell again.
For companies with less than $10 million of assets, many of which are family-owned enterprises, 1 in 166 was audited, down from 1 in 53 five years earlier.
Among companies with more than $10 million of assets, which pay nearly all corporate income taxes, the audit rate fell to a record low of 1 in 6, down from 1 in 4 five years earlier.
Data on sole proprietorships, classified by the I.R.S. as Schedule C businesses, was not available today. Data released a year ago showed that following the same pattern as with individuals, the I.R.S. gave more scrutiny to tiny enterprises with gross sales of less than $25,000 in 2000 than it did to those with revenue of $100,000 or more.
Mr. Rossotti also released data showing that the I.R.S. had paid out $31.3 billion in earned-income tax credits, which was $8.5 billion to $9.9 billion more than it should have, to the working poor. The credit, a form of negative income tax championed by President Ronald Reagan to encourage people to leave welfare for work, reduces taxes owed and, when they reach zero, results in a refund of up to $364 for an individual and $4,008 for a family with children.
Mr. Rossotti's own report showed, however, that the overpayment estimates were inflated. For example, no effort was made to calculate the tax credits from people who either did not file a tax return or who did file and were eligible for the credit, but did not apply for it.
A second and more substantial criticism of the estimate was made by Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a nonprofit organization that advocates on behalf of the working poor.
In many cases, he said, the wrong person living in a household applied for the credit. For example, a single working mother who lives with her mother who also works is denied the credit if she applies for it, and her mother makes more money than she does. The credit should go to the highest earner in the household.
"Instead of doing the extra work to calculate the amount of the credit that was paid and subtracting the amount that should have been paid the government just counted all of it as excess," Mr. Greenstein said.
A new rule, taking effect this year for tax returns due in April 2003, should eliminate some of the confusion in households of the working poor shared by three or more generations, he said.
Mr. Rossotti and the Treasury Department, in a joint statement today, acknowledged that much of the apparent overpayment of the credit appears to be because of overly complex rules. They said the government was forming a committee to find ways to simplify the rules.
One area where enforcement remains almost nonexistent is seizure of property from people who refuse to pay taxes. Property was seized on 254 occasions last year, up from 174 in 2000, but a tiny fraction of the more than 10,000 seizures conducted each year before 1998.
Because there is no such law providing for such reparations, the IRS rejects such claims. Taxpayers who repeatedly file claims after receiving a denial notice are subject to a $500 penalty for filing a frivolous tax return.
Not quite true. Until this year, the IRS hadn't noticed the scheme, and actually paid many of these claims.
I read the stupid tax book and it said very clearly that non-cash benefits had to be figured in before one could qualify. We never qualified because we lived in Navy housing. That didn't stop everyone my husband worked with, the neighbors, and HR and R Block from trying to get me to claim it.
Within a couple of years they began listing the amount of the housing benefit on the tax forms.
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