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.
A major reason that the IRS goes after the working poor is because they do not have the resources to hire lawyers or accountants. They are easily intimidated and tend to cave. Because this is easier than going after major tax cheats, IRS agents know that intimidation of the working poor earns promotion points faster than anything which would produce actual revenue.Revenue is a secondary objective of taxation. The major objective is striking fear into the hearts of the sheeple so that they obey. If the Pubbies would grow balls and take on this issue, it would go a very long way to getting the working poor off the DemocRAT plantation. (Notice who states like Idaho and Wyoming elect which have a huge share of working poor in their population and, coincidently, are among the few states where the country clubbers do not dominate the Republican Party machinery.)
The problem with the EITC is that it's $2,000 to $3,000 payment is huge temptation even for people who make above $50,000. The key to the fraud is people either pretending to be not married or using two different addresses to split up family income (to meet the income limits) or ignoring the fact that when an unmarried couple lives together, the much higher income of the live-in boyfriend if he lives there for most of the year invalidates single mom's eligibility.
Seems to me the quickest way to end this FRAUD and ILLEGAL RE-DISTRIBUTION OF WEALTH is to eliminate the EITC. While we're at it, get rid of the f'ing IRS TOO!!
Why should *I* have to pay a higher tax rate to fund someone who can't even make enough money to pay taxes?
Far as I'm concerned, the IRS can and SHOULD crack-down on these EITC cheats! I'm sick and damn' tired of the damn' tax code taking away MY money to re-distribute to so-called working "poor!"
ENOUGH ALREADY! I'm sick and damn' tired of being penalized for being successful and making a good living, while some SLOTH gets my money via the EITC for sitting on his/her ass, or not being smart enough to advance themselves.
Yep. Great concept. Terrible invitation to fraud.
The above is another Democrat LIE.
The reason the IRS is bearing down on the so-called working poor is because of their fraudulent claims for the Earned Income Tax Credit. Congratulations to the IRS for cracking down on this Democrat welfare fraud using the tax system.
would it be the same repubs who want to run the govt like abusiness? now how long would a business last if it devoted resources to its smallest revenue streams?
They are not that stupid.
Thats silly. The main reason is the EIC is a refundable credit and scam artists create imaginary taxpayers to get free cash from the IRS.
Not so. Former Congressman George Hansen of Idaho published an exhaustive book on IRS practices. It was well documented and quoted extensively not only from former IRS agents who had quit in disgust, but waitresses who were taxed on tip income they never got.
For his trouble, Congressman Hansen (a conservative Republican, btw) was railroaded out of congress on totally bogus campaign finance law violations. After losing his seat in a narrow election orchestrated by these alleged law violations, Congressman Hansen was railroaded through the federal penal system before finally having all charges thrown out 5-6 years later.
I was acquainted with George Hansen when I was a college student-- a finer more honorable patriot you'd never meet. It was thanks to the country club Republican set who refused to stand up for people like him and their treatment of Ronald Reagan (who I campaigned for in 1976) that I became a Democrat. Both of North Dakota's senators are former State Tax Commissioners who understood the IRS abuses and cleaned up the state tax department as their ticket to higher office, where they've since become part of the tax and spend establishment.
If Republicans could only see this and champion the cause of the working poor, they wouldn't have to settle for being socialism lite. Ronald Reagan understood this, but too many fat cat Republicans have forgotten.
Been sheered? I have...now do the two step
I don't know about that. I got audited for a year which I was unemployed in and going thru medical treatment. It was because I'd made stock transactions and hadn't reported them. It took many hours and about 20 pages of documentation but it was all simple, straightforward stuff. Nothing an auditor would be needed for. I had to show every stock transaction I'd made over the previous two years versus my bank account activity to show my withdrawl from savings wasn't a reportable net income off of the stock trades. It wasn't fun, but my case cleared on the first attempt. I just can't imagine how someone without money would need an auditor or a battery of lawyers for an audit. I'd agree with others that these audits are for the EIC.
Agreed. In fact, the "working poor" don't have federal tax liabilities since they get this EITC. I think another reason audits for high income earners are down is because the ruthless efficiency of the tax system is such that most high income types are not in a cash business, and with all the reporting requirements and need for tax ID numbers, etc. the IRS probably knows as much about people's income and expenses as the taxpayer. No need to audit except for show when you know everthing already.
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