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IRS Focusing Audits on High-Income Taxpayers, Evasion Schemes
AP ^ | Sept 12, 2002 | Curt Anderson

Posted on 09/12/2002 12:46:34 PM PDT by Liz

WASHINGTON (AP) - The Internal Revenue Service plans to focus more attention on high-income individuals and those involved in tax avoidance schemes such as credit cards issued by offshore banks.

The intent of the new audit strategy announced Thursday is to uncover methods taxpayers use to avoid taxes and hide income from the IRS, rather than simply checking returns that are filed for mistakes or relatively simple omissions.

IRS Commissioner Charles Rossotti, while insisting the agency is "not giving anybody a free ride," said the aim is to free up auditors to focus on such things as tax shelters, offshore credit cards used to hide income, wealthy people who fail to file returns and other major problems.

"The real world is such that we have limited resources," Rossotti said. "We are trying to figure out as best we can where is the most threat to the system."

The IRS estimates the nation's "tax gap," the difference between income taxes that should be paid and what is actually collected, at $207 billion annually. Not all of that lost revenue is due to cheating, but evaders do make up a significant portion.

Much of the unpaid tax bill comes from income that is never reported to the IRS. To get at this problem, the IRS has developed a new statistical method of selecting returns with a high probability of unreported income.

The previous formula used, Rossotti said, "did not focus on what was not on the return, on income that might not have been reported at all."

Among the tax avoidance schemes to be targeted for audits are promoters of nonexistent slavery reparations, who make frivolous arguments to avoid filing returns, abusive tax shelters and trusts and employment schemes such as paying in cash and filing false payroll tax returns.

Rossotti said the IRS already has 150 ongoing audits of tax shelter promoters, with another 150 in the beginning stages of an audit.

Focusing more audits on higher-income taxpayers would also alter the perception that the IRS pays greater attention to the modest-income people than to the rich. While calling that perception unfair, Rossotti did say that because 60 percent of income taxes are paid by those earning $100,000 an up, it was important to concentrate on them.

The move also comes as the IRS struggles to increase the number of returns it audits, which rose slightly to 732,000 last year - about 1 in every 173 - but remains far below the 1.9 million audited in 1996. The IRS is in the midst of a project, its first since 1988, of randomly auditing about 50,000 of this year's returns to gather research on tax filing and errors.

"The really big point is that we're trying to maintain the faith that the honest taxpayer has in the system," Rossotti said. "We know that when people abuse the system, it tends to reduce that faith."


TOPICS: Breaking News; Business/Economy; Government; News/Current Events
KEYWORDS:
EXCERPT: Among the tax avoidance schemes to be targeted for audits are promoters of nonexistent slavery reparations, who make frivolous arguments to avoid filing returns, abusive tax shelters and trusts and employment schemes such as paying in cash and filing false payroll tax returns.
1 posted on 09/12/2002 12:46:34 PM PDT by Liz
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To: Liz
Thanks for posting this. And also for pointing out the stuff about the "slavery reparations." I am anticipating being audited next year, and it's good to read about the real scammers (I am NOT one.)
2 posted on 09/12/2002 12:49:20 PM PDT by EggsAckley
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To: Liz
Abolish the IRS. If they are so worried about losing tax dollars from the cash economy, institute a National Sales Tax.
3 posted on 09/12/2002 12:49:51 PM PDT by austingirl
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To: Liz
plans to focus more attention on high-income individuals and those involved in tax avoidance schemes

PSSSST!!!!!!

IRS...............JESSE JACKSON


4 posted on 09/12/2002 12:50:01 PM PDT by Michael.SF.
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To: Liz
FWIW, I was told by a member of my family who works for the IRS that if your income is between $35,000 a year and $100,000 a year, that your chances of getting an audit is virtually zilch. Reasoning is that the IRS suspects people making less than $35,000 a year might be "hiding" income and those making under $100,000 (but more than $35,000)won't have enough "bang for the buck" to make the audit worth it. However there are flags that might still cause those in the middle to get an audit, the biggest one being taking deductions for a "home office."
5 posted on 09/12/2002 12:52:52 PM PDT by SamAdams76
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To: Liz
No prob. If you get busted, just donate money to the presidential library fund and get pardoned.
6 posted on 09/12/2002 12:54:28 PM PDT by BJClinton
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To: Liz
It beats what they did before the Traficant bill that reformed the IRS: They used to focus on middle class Mom & Pop types that couldn't afford an attorney to fight back.
7 posted on 09/12/2002 12:54:44 PM PDT by Thane_Banquo
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To: Liz
High-income? Oh, I guess I won't have to worry....
8 posted on 09/12/2002 12:57:47 PM PDT by anniegetyourgun
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To: Liz
"The real world is such that we have limited resources," Rossotti said.

LOL!! Unfortunately, we don't live in a world in which the IRS auditing department gets to spend an infinite amount of money ... according to Rossatti.

9 posted on 09/12/2002 1:02:58 PM PDT by coloradan
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To: SamAdams76; Liz; Lazamataz
The methods mentioned in the article are all old hat.

A St. Louis attorney is currently convincing rich businesswomen to convert their income streams into an arrangement wherein an ESOP (an "employee" owned stock plan) owns an S corp.

S corps don't pay taxes, but rather pass income directly to owners, who then pay taxes. But ESOP's don't pay taxes (they distribute money directly to employees).

Thus, this new arrangement legally dodges all federal income taxes.

A rather high-level IRS executive admitted to me personally that they've already lost two court cases trying to stop this "scam", and that until Congress changes the law that this thing is going to snowball as more people learn about it.

It certainly puts the old scams of off-shore credit-cards to shame. Who needs to hide a little income and risk jail when they can legally dodge all federal income taxes, after all?!

10 posted on 09/12/2002 1:09:26 PM PDT by Southack
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To: anniegetyourgun
High-income? Oh, I guess I won't have to worry....

Me either!

11 posted on 09/12/2002 1:30:01 PM PDT by lonestar
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To: coloradan
I keyed in to that phrase, too. Is that remark intended to invoke sympathy? He's gotta be kidding.
12 posted on 09/12/2002 1:31:30 PM PDT by lainie
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To: Southack
A St. Louis attorney is currently convincing rich businesswomen to convert their income streams into an arrangement wherein an ESOP (an "employee" owned stock plan) owns an S corp.
S corps don't pay taxes, but rather pass income directly to owners, who then pay taxes. But ESOP's don't pay taxes (they distribute money directly to employees).
Thus, this new arrangement legally dodges all federal income taxes.
A rather high-level IRS executive admitted to me personally that they've already lost two court cases trying to stop this "scam", and that until Congress changes the law that this thing is going to snowball as more people learn about it.
It certainly puts the old scams of off-shore credit-cards to shame. Who needs to hide a little income and risk jail when they can legally dodge all federal income taxes, after all?!

Interesting, but a quick Google got me to Beware of S Corporation ESOP Management Company Scams I'd be inclined to investigate the case law first.... :-)

13 posted on 09/12/2002 3:39:28 PM PDT by glorgau
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To: glorgau
Nice article. Did you read its conclusion?
14 posted on 09/12/2002 3:48:19 PM PDT by Southack
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To: Liz
"The really big point is that we're trying to maintain the faith that the honest taxpayer has in the system," Rossotti said. "We know that when people abuse the system, it tends to reduce that faith."

The higher the taxes one has to pay, the more likely one will try to avoid paying them. High taxes can have the effect of turning otherwise honest citizens into criminals.

15 posted on 09/12/2002 4:33:29 PM PDT by EVO X
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To: Southack
I'd suppose the ultimate tax dodge is to go entirely offshore and just stop filing tax returns. There's no issue of filing false documents etc...
16 posted on 09/12/2002 5:08:23 PM PDT by Dialup Llama
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To: Liz
Me wonders if Bill & Hill might be caught hiding $'s in their off shore accounts? Just the thought brings on a huge smile...
17 posted on 09/13/2002 1:32:32 AM PDT by demkicker
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