IRS Discrimination

[NobleSavage]

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.

Way to go Tom, you are the 3rd person to point out what I already said in my OP. Now, do you feel that the IRS should be run like Walmart where maximizing ROI is the #1 goal? Is it ok for the government to to harass one group of people because they are easy targets?

Other goals I think they should have are good customer service, providing clear instructions, consistency and clarity throughout there mammoth website, etc. They are failing hard at all those. If you have dealt with the IRS in the last year you would find that it's near impossible to get someone on the phone or get a question answered. A cursory Google search explains that this is all the fault of the Republican budget cuts. However, if you dig a little deeper you will find that it is mostly stupid tribal politics. Republicans cut the IRS budget back to baseline and the IRS retaliated by disproportionately slashing the customer service side. It was a deliberate "fuck you" to get the headlines they wanted.

 

[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.

Way to go Tom, you are the 3rd person to point out what I already said in my OP. Now, do you feel that the IRS should be run like Walmart where maximizing ROI is the #1 goal? Is it ok for the government to to harass one group of people because they are easy targets?

Other goals I think they should have are good customer service, providing clear instructions, consistency and clarity throughout there mammoth website, etc. They are failing hard at all those. If you have dealt with the IRS in the last year you would find that it's near impossible to get someone on the phone or get a question answered. A cursory Google search explains that this is all the fault of the Republican budget cuts. However, if you dig a little deeper you will find that is mostly stupid tribal politics. Republicans cut the IRS budget back to baseline and the IRS retaliated by disproportionately slashing the customer service side. It was a deliberate "fuck you" to get the headlines they wanted.

Well, the main point of the IRS is collect taxes so the rest of the US government can function, so yes, maximizing ROI should be at the top of their goal list. They didn't create the budget restraints they operate under but need to find a way to do their job under those restraints. As this pertains to the auditors, paying them to spend their day tracking down a few hundred dollars from a waitress who doesn't report all her tips is a waste of time when they could be using that time to track down tens of thousands of dollars from a millionaire who'd hiding assets through fancy accounting tricks.

The politics behind why the IRS doesn't have the resources to do both doesn't affect the discussion of how the IRS should be operating due to those constraints.

 

[ksen]

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....

This is what happens when you don't properly fund a government function.

Go cry at the republicans for "starving the beast".

 

[NobleSavage]

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....

This is what happens when you don't properly fund a government function.

Go cry at the republicans for "starving the beast".

Did you even bother reading the post right before this one? If you want to get into the tit-for-tat tribal politics, fine. I might find time for it today, even though I really don't have a team to root for. Expressing the issued like you just did doesn't give a clear picture of what is going on. Google for the report of the Ways and Means Committee on the IRS. Yeah, it's chaired by a Paul Ryan, but that is a good place to start.

 

[laughing dog]

However, if you dig a little deeper you will find that it is mostly stupid tribal politics. Republicans cut the IRS budget back to baseline and the IRS retaliated by disproportionately slashing the customer service side. It was a deliberate "fuck you" to get the headlines they wanted.

Unless you have specific evidence that the IRS "retaliated" rather than simply balanced competing goals within a reduced budget, I find that particular conclusion rather strange, since it plays into the Republicans' strategy because it makes for more complaints and IRS bashing.

The IRS develops, maintains and updates statistical models to flag likely tax evaders and tax "misinterpreters". They use those models to help choice likely audit candidates. It is a rational and reasonable approach to collecting legitimate tax liabilities. It is an odd turn of the phrase to describe legitimate efforts to collect taxes owed as some sort of immoral discrimination, but is certainly your choice.

 

[ZiprHead]

Since the IRS is not discriminating based upon sex, ethnicity, age, the usually cited illegal discrimination methods, they are not doing anything illegal.

The idea that the IRS should audit simple, obviously legit tax returns at the same rate as complex, far easier to cheat returns is, imo, a completely stupid and wasteful idea. I don't know if this idea was NS's alone or it came from some right-wing, panties-in-a-twist web site but it's certainly TEA party, anti-IRS stupid.

 

[Axulus]

From what I've heard from other colleagues, there is a full-time IRS team dedicated to a continuous audit of Exxon Mobil. Their tax return is something like 60,000 pages long. Smaller corporations do not have such a fully dedicated IRS team.

Is this also discrimination?

Maybe it could be said that the IRS is auditing units of economic activity and not people. Therefore, if you as an individual are engaged in more units of economic activity, then your chances of an audit will be greater as you have more tickets entered into the audit lottery. This seems fair in that respect. Furthermore, each individual ticket has a higher chance of being flagged since there is more room for abuse with a complicated tax return (thus increasing the odds that taxes will be underpaid for each of those individual tickets).

 

[Malintent]

I think most people in the US are wage-based workers that take a standard deduction. Apart from math errors (that are kicked back automatically by computer, and are not 'audits'), there is exactly no wiggle room and resultantly there is absolutely nothing to audit. The numbers add up or they don't.
High wage and self employed folks have much more wiggle room, with their property deductions making the standard deduction a foolish choice, the Schedule A opens the doors for all kinds of claims for deduction that can be audited.

 

[coloradoatheist]

I think most people in the US are wage-based workers that take a standard deduction. Apart from math errors (that are kicked back automatically by computer, and are not 'audits'), there is exactly no wiggle room and resultantly there is absolutely nothing to audit. The numbers add up or they don't.
High wage and self employed folks have much more wiggle room, with their property deductions making the standard deduction a foolish choice, the Schedule A opens the doors for all kinds of claims for deduction that can be audited.

People are mixed. Most middle class people itemize along with wages, they have stock and mutual fund purchases, property tax, charity donations. Each group has ways that they can hide their money but only certain things are easier to catch for the IRS.

 

[ronburgundy]

It is really very simple. The IRS should be trying to get as much of the underpaid owed taxes they can while spending as little $ as possible to do it. Their job is to close the revenue gap between what the Fed is actually owed under law and what it is getting. Their job is not to waste what revenue has been paid going after ever tiny infraction when the likely payoff is a net-loss due to audit expenditures exceeding the unpaid taxes.
That means going after the rich whose underpayments are likely to 50 times larger than underpayments of the middle class. In fact, if anything the difference in audit rates is not nearly large enough. It should probably be closer to 50:1, rather than merely 12:1.

Estimates are that around 16% of tax returns are wrong in the filer's favor. Given that the rich have more places to make unintentional or intentional errors in their returns, it could easily be that those making over a million are more the 25% likely to under-report. So, it would be perfectly reasonable for the IRS to audit 25% of them each year, while only auditing 0.5% of the middle class.

BTW, that would not mean that if you were rich, you have to expect to get audited every 4 years. IF you do your taxes competently and honestly and don't try to get away with everything you can, then you will be much less likely than other wealthy people to get audited. The IRS flags returns for audits based upon various suspicious factors, including cross-year trends and changes a person's returns. IOW, the true odds for getting audited, if you are rich are higher than 12% if you're shady and lower than that if you are not.

 

[Loren Pechtel]

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.

My impression is that most of that underground economy is criminals, not people working under the table.

And note that the IRS is a lot more likely to investigate the average Joe if he works a tipped job because they're aware of the rampant under-reporting.

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.

Yeah, working tipped can pay well. We know a couple that had a combined income well above $100k that was mostly tips (they both work as dealers in a decent casino.)

As for the hair stylists and massage therapists--when the pay goes through the payment system of the place of business it's hard to play games. If they're paid directly it's much easier to cheat. I suspect you're right about the strippers.

 

[Tom Sawyer]

I suspect you're right about the strippers.

There's only one way to find out - research. Lots and lots of research.

 

[coloradoatheist]

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.

My impression is that most of that underground economy is criminals, not people working under the table.

And note that the IRS is a lot more likely to investigate the average Joe if he works a tipped job because they're aware of the rampant under-reporting.

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.

Yeah, working tipped can pay well. We know a couple that had a combined income well above $100k that was mostly tips (they both work as dealers in a decent casino.)

As for the hair stylists and massage therapists--when the pay goes through the payment system of the place of business it's hard to play games. If they're paid directly it's much easier to cheat. I suspect you're right about the strippers.

It's not just tip jobs, but there are a lot of people who get paid cash and it doesn't show up in any system. But this is much harder for the IRS to track down.

 

[Loren Pechtel]

I think most people in the US are wage-based workers that take a standard deduction. Apart from math errors (that are kicked back automatically by computer, and are not 'audits'), there is exactly no wiggle room and resultantly there is absolutely nothing to audit. The numbers add up or they don't.
High wage and self employed folks have much more wiggle room, with their property deductions making the standard deduction a foolish choice, the Schedule A opens the doors for all kinds of claims for deduction that can be audited.

You can have errors other than math errors that cause those letters from the IRS.

In years past I have transposed digits copying stuff from the 1099s to the tax return and gotten letters. Back in 2013 I managed to fat-finger an extra digit onto a basis value. I caught it nearly a year later and amended, they never sent me a letter.

I disagree about the self-employed and schedule A, though. Self employment doesn't give any opportunities on A that the average person does not have. What self-employment does is open a whole raft of possibilities on schedule C that lack the checks and balances of the 1040 and 1040-B that most people use.

- - - Updated - - -

It is really very simple. The IRS should be trying to get as much of the underpaid owed taxes they can while spending as little $ as possible to do it. Their job is to close the revenue gap between what the Fed is actually owed under law and what it is getting. Their job is not to waste what revenue has been paid going after ever tiny infraction when the likely payoff is a net-loss due to audit expenditures exceeding the unpaid taxes.
That means going after the rich whose underpayments are likely to 50 times larger than underpayments of the middle class. In fact, if anything the difference in audit rates is not nearly large enough. It should probably be closer to 50:1, rather than merely 12:1.

If you go only for the maximum $ for the effort you'll ignore the little guys and making cheating zero risk for them--and thus have a lot more cheating. You need some checking no matter what the income bracket.

 

[Hawkingfan]

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.

Just a nitpick: the tax is still being paid, however. That's what the average layperson misunderstands in these situations. Person or company A hires contractor B to do work, pays him without giving him a 1099. That just means the contractor won't pay the tax on it. However, company A already has. That's why he would have given the 1099 to the contractor. The money did not grow on a tree. Once company A gives the 1099 to contractor B, then company A no longer pays the tax on it (that amount is written off as a deduction from income), and contractor B now has to pay the tax on it. So in most cases, just because a 1099 does not exchange hands does not mean the money was not taxed.

 

[Hawkingfan]

Don't forget the taxpayer gets a credit for the Alternative Minimum Tax and Tax Preference Items so when their income goes down in future years (such as when they retire, for example) they get that money back. We've seen this happen with a lot of our clients.

 

[NobleSavage]

Since the IRS is not discriminating based upon sex, ethnicity, age, the usually cited illegal discrimination methods, they are not doing anything illegal.

The idea that the IRS should audit simple, obviously legit tax returns at the same rate as complex, far easier to cheat returns is, imo, a completely stupid and wasteful idea. I don't know if this idea was NS's alone or it came from some right-wing, panties-in-a-twist web site but it's certainly TEA party, anti-IRS stupid.

I don't really have a specific idea in mind when I started this thread other than DAMN the IRS really has a hard on for high income people. I certainly don't follow any "right-wing, panties-in-a-twist websites". I just stumbled on the high audit rates of wealthy people out of curiosity and was shocked (mostly because I'm dealing with IRS identity theft -- someone keeps using my SS# and name to report W-2 earnings. They have 3000 people working on just this issue alone).

 

[NobleSavage]

It's not just tip jobs, but there are a lot of people who get paid cash and it doesn't show up in any system. But this is much harder for the IRS to track down.

Anyone know if there is any tracking at all on these prepaid debit cards you can get at the corner store?

 

[NobleSavage]

[ Unless you have specific evidence that the IRS "retaliated" rather than simply balanced competing goals within a reduced budget, I find that particular conclusion rather strange, since it plays into the Republicans' strategy because it makes for more complaints and IRS bashing.

What would you accept as proof? I hope you don't think I'm a Republican.

The IRS develops, maintains and updates statistical models to flag likely tax evaders and tax "misinterpreters". They use those models to help choice likely audit candidates. It is a rational and reasonable approach to collecting legitimate tax liabilities. It is an odd turn of the phrase to describe legitimate efforts to collect taxes owed as some sort of immoral discrimination, but is certainly your choice.

Odd turn of phrase... How else do you get people in this forum to pay attention to something that isn't normally left of center? I've tried non-hyperbolic methods and the treads just die. On the other hand, if someone posts anything about 1) the evil 1%, 2) XYZ is a racist, or 3) XYZ is a sexist the discussion will go on for tens of pages.

Anyhow, the two two models the IRS uses, the DIF score and the UDIF, score are a closely guarded secret. Do you automatically assume all government agencies fairly and honestly going about their business? Do you apply the same standard to the DEA? NSA? The Military? Let's try it your way "Unless you have specific evidence that the IRS" doesn't have harassment built into that 12% audit rate of less than .01% of the population, it's probably safe to assume they do.

I don't automatically assume the interests of the .01% are at odds with mine and I don't really look at them as an enemy where any attack is fine.

 

[NobleSavage]

Don't forget the taxpayer gets a credit for the Alternative Minimum Tax and Tax Preference Items so when their income goes down in future years (such as when they retire, for example) they get that money back. We've seen this happen with a lot of our clients.

That is interesting, I learn something new every day. Thanks.