IRS Discrimination

[NobleSavage]

Last year the IRS audited about 1% of those earning less than $200,000, and almost 4% of those earning more, according IRS data. Raise the threshold to $1 million and the percentage of audited tax returns increases to 12.5%.

The same patterns exist when it comes to business tax returns: 1% of corporations with less than $10 million in assets, compared with 17.6% above that threshold.

https://turbotax.intuit.com/tax-too...Flags-That-Trigger-an-IRS-Audit/INF22648.html

I get it, the IRS wants MONEY and it makes sense to disproportionate discriminate against people who have it. If they were targeting a racial minority or specific sexual preference, all hell would break loose. Waiting for the left wing apologetics....

 

[laughing dog]

It makes economic sense to audit returns that have the greatest chance of mistakes or evasions and that can generate the most return for the expended effort in the audit. It would be a dereliction of their fiduciary responsibility to audit higher income people at the same rate as low income people. Households with incomes about 1 million dollars typically have the resources for someone else to deal with their tax returns and audits. Since income earned is not a genetic characteristic, the probability of audit can be reduced by conscious choice, unlike race or sexual preference.

 

[Loren Pechtel]

Last year the IRS audited about 1% of those earning less than $200,000, and almost 4% of those earning more, according IRS data. Raise the threshold to $1 million and the percentage of audited tax returns increases to 12.5%.

The same patterns exist when it comes to business tax returns: 1% of corporations with less than $10 million in assets, compared with 17.6% above that threshold.

https://turbotax.intuit.com/tax-too...Flags-That-Trigger-an-IRS-Audit/INF22648.html

I get it, the IRS wants MONEY and it makes sense to disproportionate discriminate against people who have it. If they were targeting a racial minority or specific sexual preference, all hell would break loose. Waiting for the left wing apologetics....

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

 

[NobleSavage]

It makes economic sense to audit returns that have the greatest chance of mistakes or evasions and that can generate the most return for the expended effort in the audit.

And I said as much in my OP.

It would be a dereliction of their fiduciary responsibility to audit higher income people at the same rate as low income people.

IRS agents shouldn't have a fiduciary duty to the IRS like private sector management has to stake holders. The IRS should strive to treat everyone equally.

with incomes about 1 million dollars typically have the resources for someone else to deal with their tax returns and audits.

Yeah, they pay people to do their taxes, but so do a lot of middle class people. The audit is a different story. Sure you can hire tax attorneys at $300+ an hr, but it is still going to be as pleasant as a colonoscopy.

the probability of audit can be reduced by conscious choice

Ok, let's forget about the corporate side. Just people making more than $1mil. Forget schedule C sole proprietors, if you are making over a million you have incorporated or your an idiot. So, other than making less money what are your options? Take less deductions? If you take every legit deduction you still get nailed with the Alternative Minimum Tax. Donate less to charity? Don't claim 100% of business use of a vehicle. Make sure and report gambling winnings? Make sure your titled assets seem reasonable for your income? Make sure not to forget a foreign bank account? Does that justify a 12% audit rate? Jesus, if every time I filed my taxes I knew there was a 12% chance of audit it would really suck.

 

[Nice Squirrel]

https://turbotax.intuit.com/tax-too...Flags-That-Trigger-an-IRS-Audit/INF22648.html

I get it, the IRS wants MONEY and it makes sense to disproportionate discriminate against people who have it. If they were targeting a racial minority or specific sexual preference, all hell would break loose. Waiting for the left wing apologetics....

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

This. A 1040 EZ is pretty straight forward. A 1040 with tens of thousands in deductions that are not well documented is worth looking into.

 

[NobleSavage]

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

Right, I mentioned that I understand why the IRS does it.

There is little room for tax games, but plenty of room for cash games where no 1099 is ever filed. Granted, these are much harder to catch, but I'd bet they are much more common that millionaires trying to scam the system.

 

[NobleSavage]

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

This. A 1040 EZ is pretty straight forward. A 1040 with tens of thousands in deductions that are not well documented is worth looking into.

If you do tens of thousands of deductions on your 1040 you get nailed by the AMT unless you are trying to run a biz as a sole proprietor. How many people making a million + are year a dumb enough to do it that way? Enough to justify a 12% audit rate?

 

[Nice Squirrel]

This. A 1040 EZ is pretty straight forward. A 1040 with tens of thousands in deductions that are not well documented is worth looking into.

If you do tens of thousands of deductions on your 1040 you get nailed by the AMT unless you are trying to run a biz as a sole proprietor. How many people making a million + are year a dumb enough to do it that way? Enough to justify a 12% audit rate?

You'd be surprised. I've met several that were doing their own taxes, gaming the system and then wondering why they get flagged for audit on a yearly basis. For example: a $5k BBQ for their home written off as a business expense because they may use it to entertain clients, someday. A new luxury car for their child written off as a business expense... or hiding income in their children's names to name a few things I have seen.

 

[laughing dog]

IRS agents shouldn't have a fiduciary duty to the IRS like private sector management has to stake holders.

Of course they should. The taxpayers are the stakeholders. Every dollar that is owed but not collected means someone else is likely to end up paying it.

The IRS should strive to treat everyone equally.

Why?

Yeah, they pay people to do their taxes, but so do a lot of middle class people. The audit is a different story. Sure you can hire tax attorneys at $300+ an hr, but it is still going to be as pleasant as a colonoscopy.

Do you have a point here?

Ok, let's forget about the corporate side. Just people making more than $1mil. Forget schedule C sole proprietors, if you are making over a million you have incorporated or your an idiot. So, other than making less money what are your options? Take less deductions? If you take every legit deduction you still get nailed with the Alternative Minimum Tax. Donate less to charity? Don't claim 100% of business use of a vehicle. Make sure and report gambling winnings? Make sure your titled assets seem reasonable for your income? Make sure not to forget a foreign bank account?

Or earn less. Or change how you earn your income.

Does that justify a 12% audit rate? Jesus, if every time I filed my taxes I knew there was a 12% chance of audit it would really suck.

I think most people would agree to that chance of an audit if it meant upping their income to $1million + .

 

[Loren Pechtel]

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

This. A 1040 EZ is pretty straight forward. A 1040 with tens of thousands in deductions that are not well documented is worth looking into.

It's not just that the 1040-EZ is straight forward, but that most likely everything on it also appeared on somebody else's data. You list your W-2, your employer lists the same W-2. If they match the IRS is going to figure it's correct--and if they don't match you probably only get a simple notice, not a full-blown audit.

People with any sense are only going to play tax games when dealing with data the IRS doesn't already have in front of them.

- - - Updated - - -

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

Right, I mentioned that I understand why the IRS does it.

There is little room for tax games, but plenty of room for cash games where no 1099 is ever filed. Granted, these are much harder to catch, but I'd bet they are much more common that millionaires trying to scam the system.

But how many people are in a position to be paid cash with no 1099 involved?

 

[Loren Pechtel]

If you do tens of thousands of deductions on your 1040 you get nailed by the AMT unless you are trying to run a biz as a sole proprietor. How many people making a million + are year a dumb enough to do it that way? Enough to justify a 12% audit rate?

You'd be surprised. I've met several that were doing their own taxes, gaming the system and then wondering why they get flagged for audit on a yearly basis. For example: a $5k BBQ for their home written off as a business expense because they may use it to entertain clients, someday. A new luxury car for their child written off as a business expense... or hiding income in their children's names to name a few things I have seen.

Note that it's the schedule C deductions that people can abuse far more than the schedule A ones.

 

[fromderinside]

If you do tens of thousands of deductions on your 1040 you get nailed by the AMT unless you are trying to run a biz as a sole proprietor. How many people making a million + are year a dumb enough to do it that way? Enough to justify a 12% audit rate?

Yes. Just another reminder that people who get large sums of money annually aren't smarter than the rest of us.

 

[NobleSavage]

You'd be surprised. I've met several that were doing their own taxes, gaming the system and then wondering why they get flagged for audit on a yearly basis. For example: a $5k BBQ for their home written off as a business expense because they may use it to entertain clients, someday. A new luxury car for their child written off as a business expense... or hiding income in their children's names to name a few things I have seen.

Note that it's the schedule C deductions that people can abuse far more than the schedule A ones.

Right, the schedule C is for sole proprietorships. I highly doubt that there are a significant amount of people making > $1mil a year doing it that way.

 

[bilby]

Note that it's the schedule C deductions that people can abuse far more than the schedule A ones.

Right, the schedule C is for sole proprietorships. I highly doubt that there are a significant amount of people making > $1mil a year doing it that way.

There are in Zimbabwe

 

[NobleSavage]

Of course they should. The taxpayers are the stakeholders. Every dollar that is owed but not collected means someone else is likely to end up paying it.

The fiduciary duty is different for different organizations. The duties of trust fund manager and non-profit board member are different than for-profits. And, I’d personaly put government is a different class altogether. I definitely wouldn't equate citizens with owners of a corporation. If you don't think so, then we’ll just have to disagree. Besides that, there are probably less than 250,000 people who make more than $1mil a year. I'm not completely convinced that is where the money is -- I'm willing to believe it's easier to find them. I'm even more willing to believe that 317,000,000 people in the US that don't make > $1mil are happy, or at least not troubled, about the wealthy being targeted and harassed.

The IRS should strive to treat everyone equally.

Basic principles of fairness that stem from basic principles of morality. Plus, I hold the government to a higher standard. I’m ok with a small amount of profiling, but would you be happy if the IRS targeted people living in Minnesota 12x as often, if for some strange reason it made financial sense? You could always decrease your chances of being audited by moving to another state.

Yeah, they pay people to do their taxes, but so do a lot of middle class people. The audit is a different story. Sure you can hire tax attorneys at $300+ an hr, but it is still going to be as pleasant as a colonoscopy.

Do you have a point here?

Yeah, I was replying to your point. Maybe you forgot what that was. In so many words you said it was fine for rich people to be harassed by the IRS because they can just hire someone to deal with it.

Does that justify a 12% audit rate? Jesus, if every time I filed my taxes I knew there was a 12% chance of audit it would really suck.

I think most people would agree to that chance of an audit if it meant upping their income to $1million + .

A lot of people would put up with any number of horrible things for a million bucks. I’m sure there are many people that would sacrifice a finger for money. That doesn’t make the government doing it ok.

 

[NobleSavage]

But how many people are in a position to be paid cash with no 1099 involved?

Probably more than you think. The figure being thrown around for the underground economy in the US is $2 trillion. How many of them are drug lords, petty criminals, and prostitutes vs people doing jobs for cash or not reporting tips -- I don't know.

I do know there are a lot of people who will do stuff like: clean your house; power wash your deck, siding, or driveway; snow removal; fix anything that is broken; haul away junk; cut down trees, etc. Most of them only want cash and if you give them a check they take it to your bank and cash it. They are smart enough not to put it into their own bank account. They know $600 is the magic number for a required 1099 and they know most people who hire them will never file a 1099.

Then there are all the tip jobs. Yeah, people talk about the tragedy of getting paid less than minimum wage even when you factor in tips, which I'm sure is true if you are working at a shit place like IHOP or Denny’s. Move a notch or two up the scale and a lot of those people make VERY good money. A bartender with good shifts, at a decent bar, makes more than a lot of salaried professionals. Most don't report all their cash. I've talked with girls who work at sports bars and they say on the weekends or on game night they can get $250 easily. What do they report to the IRS? Probably a little more than minimum wage, which reinforces the idea that anyone getting tip income is broke. You think strippers report all their lap dances? Hair stylists, massage therapists, and on and on.

 

[Tom Sawyer]

But if you catch a tax issue with one millionaire, you probably get the revenue you would from thousands of those guys. Given the limited resources of the system, focusing those resources on where you get the most ROI makes sense.

 

[Nice Squirrel]

This is why I hire people to do my taxes.

 

[dismal]

https://turbotax.intuit.com/tax-too...Flags-That-Trigger-an-IRS-Audit/INF22648.html

I get it, the IRS wants MONEY and it makes sense to disproportionate discriminate against people who have it. If they were targeting a racial minority or specific sexual preference, all hell would break loose. Waiting for the left wing apologetics....

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

EITC = fraud city.

 

[jonatha]

Actually, it makes a lot of sense even if they aren't discriminating against the rich. If you have a typical tax return with only W-2s and 1099s there's little room to hide tax games and thus little for an auditor to find.

EITC = fraud city.

And yet even if it were entirely fraudulent it would account for roughly 10% of the total shortfall...

(It's also a perennial focus of IRS anti-fraud efforts...)