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IRS Discrimination

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.

Okay, sure, you need some minimum checking at all levels to reduce deliberate cheating attempts, but there should many times more checking of the highest brackets. Basically, they need to calculate the the amount of checking that optimizes revenue-minus-checking costs which includes reducing deliberate cheating, and that optimal level is likely to be rather high for the highest income brackets (probably higher than the current 12% the OP cited) and rather low for the lower ones.
 
While the OP is absurd and wrong in nearly every way, there is one unintended way in which it is correct. The IRS does "discriminate", it accurately discriminates (i.e., "to recognize a distinction") between tax returns that are likely be cheating the Fed out of large amounts of owed taxes and those that are not. That alone can fully explain every valid fact that the OP presents.
 
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.

A can list the money as paid to others in situations for which a 1099 is not required.

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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.

Likewise, I had no idea you might be able to get it back. I've never been in AMT territory to pay attention to the details.
 
While the OP is absurd and wrong in nearly every way, there is one unintended way in which it is correct. The IRS does "discriminate", it accurately discriminates (i.e., "to recognize a distinction") between tax returns that are likely be cheating the Fed out of large amounts of owed taxes and those that are not. That alone can fully explain every valid fact that the OP presents.

So from a moral standpoint when is discrimination OK? When it's not illegal? When it's based on things like race that you can't change? That was someone’s argument in this tread. Say in 20 years you can change your skin color on a whim (with the CRSPR/cas9 stuff this is probably going to happen faster than anyone things), then can we go back to discriminating against black people?

The other train of thought in this tread (which I mentioned in the OP) was that this strategy provides the best bang for the buck. Another way of saying this is that we benefit at the expense of others. Which is odd when juxtaposed next to the evil 1% meme. If they are so powerful and beyond reproach why are their audit rates do high?

Does the amount of discrimination mater? Where do you draw the line? I do think the IRS engages in a lot of harassment. When someone complains why is it shrugged off as "IRS Bashing" or "Nutty Republicans."
 
The other train of thought in this tread (which I mentioned in the OP) was that this strategy provides the best bang for the buck. Another way of saying this is that we benefit at the expense of others.
Since this practice is supposed to get people to pay their legal tax liability, abandoning it means others benefit at the expense of us.
Which is odd when juxtaposed next to the evil 1% meme. If they are so powerful and beyond reproach why are their audit rates do high?
Wouldn't one reasonably evil people to be audited more?
Does the amount of discrimination mater? Where do you draw the line? I do think the IRS engages in a lot of harassment. When someone complains why is it shrugged off as "IRS Bashing" or "Nutty Republicans."
How does the IRS engage in "a lot of harassment"?
 
Laughing dog you get the prize for not reading and just posting comebacks.


Since this practice is supposed to get people to pay their legal tax liability, abandoning it means others benefit at the expense of us.

Nice word choice, "abandon"; the casual reader would think I'm saying it has to be all or nothing. At what point do the ends justify the means?


Screen Shot 2015-06-16 at 6.45.01 PM.png
Source: http://www.forbes.com/sites/anthonynitti/2013/03/25/what-are-your-odds-of-being-audited-by-the-irs/

That is a pretty BIG jump. One would think we are just subsidizing tax professionals with lots of compliance work by targeting a group that is acceptable for attacking.

Which is odd when juxtaposed next to the evil 1% meme. If they are so powerful and beyond reproach why are their audit rates do high?
Wouldn't one reasonably evil people to be audited more?

Reading comprehension: I know you can do it! Let's try again. My full question was if they are so powerful -- some on this forum are convinced they completely run the show -- then why does this happen?

Does the amount of discrimination mater? Where do you draw the line? I do think the IRS engages in a lot of harassment. When someone complains why is it shrugged off as "IRS Bashing" or "Nutty Republicans."
How does the IRS engage in "a lot of harassment"?
What would you take as proof?
 
Nice word choice, "abandon"; the casual reader would think I'm saying it has to be all or nothing. At what point do the ends justify the means?
Perhaps the non-thinking and jumping to false conclusions reader would come to that conclusion, but a careful and thinking person capable of rational thought would realize that abandonning the current protocols that generate a large audit of the largest tax returns does not mean abandonning those audits completely. Which explains your straw man response.

That is a pretty BIG jump. One would think we are just subsidizing tax professionals with lots of compliance work by targeting a group that is acceptable for attacking.
No, one who thinks would conclude you go after where the potential payoff is the largest.

Which is odd when juxtaposed next to the evil 1% meme. If they are so powerful and beyond reproach why are their audit rates do high?
Wouldn't one reasonably evil people to be audited more?

Reading comprehension: I know you can do it!
Try reading what you actual write (see the bold-faced). I believe you can do it.
Let's try again. My full question was if they are so powerful -- some on this forum are convinced they completely run the show -- then why does this happen?
Perhaps if you thought about it or educated yourself, you might see those very rich have complicated returns with various sources of income and various methods to legally and illegally evade taxes. And you might realize that the rich and powerful have lots of influence on the tax laws and may very well as a group feel that the tax breaks open to them are worth the low chance of an audit. But, I am not holding my breath on that.

How does the IRS engage in "a lot of harassment"?
What would you take as proof?
And question of "how" does not require proof just examples. However, claiming audits are harassment is both illogical and boot-strapping. I could understand if you said that repeated audits of the same people for years is harassment. Is that what you meant?
 
View attachment 3296
Source: http://www.forbes.com/sites/anthonynitti/2013/03/25/what-are-your-odds-of-being-audited-by-the-irs/

That is a pretty BIG jump. One would think we are just subsidizing tax professionals with lots of compliance work by targeting a group that is acceptable for attacking.

I see no big jump, just an illusion of one caused by the top categories being open ended.

Seeing the curve would be nice. It's probably a power law, so my point would still apply.
 
While the OP is absurd and wrong in nearly every way, there is one unintended way in which it is correct. The IRS does "discriminate", it accurately discriminates (i.e., "to recognize a distinction") between tax returns that are likely be cheating the Fed out of large amounts of owed taxes and those that are not. That alone can fully explain every valid fact that the OP presents.

So from a moral standpoint when is discrimination OK? When it's not illegal? When it's based on things like race that you can't change? That was someone’s argument in this tread. Say in 20 years you can change your skin color on a whim (with the CRSPR/cas9 stuff this is probably going to happen faster than anyone things), then can we go back to discriminating against black people?

Arg. Your argument basically amounts to "If eating people is wrong, then eating itself is wrong. IF eating is not wrong, then we should be able to eat people."

Discrimination merely means identifying a difference between things. Every time you ever make any decision among options, you have discriminated. It is a fundamental and neccessary aspect of nearly all human thought and action. Thus, 99.9% of acts of discrimination are amoral, without ethical implications, and the tiny remaining fraction can be either moral or immoral depending on what is being discriminated and on what basis.
It only becomes a potential moral issue when it is about discriminating among persons, and even then its okay 99% of the time, such as when you discriminate between a man and a women as a sex partner or spouse, or between a uneducated violent criminal and an educated non-criminal to tutor your child, be an employee, or just be your friend.
Its not okay when you are doing it just to trying and harm people because of the group they belong to, in contrast to what the IRS is doing which is trying to protect all of us from people doing us harm. Even when the goal is protection or recovering losses due to others harmful actions, the discrimination must based upon qualities that are objectively and rather directly relevant to identifying the responsible person.
Every single act of law enforcement is an act of discrimination. Among all the people on the planet, the investigator must discriminate between who is a suspect and who is not, based upon factors that are objectively and somewhat directly link to the actions in question, such as evidence of opportunity, means, motive, and actual behaviors empirically associated with the criminal act. That is just what the IRS is doing. They are trying to catch people who stole or accidentally took notable sums of money, because this matters more than people who took some pocket change off the dresser. The means to steal large sums via tax reporting requires large sums of income and wealth in the first place. Thus, rich people are the ones with the means. In addition, the fact that they stand to gain larger sums by intentionally lying, gives them more motive. And the more complex nature of their reporting and various forms gives them greater opportunity to both intentionally and accidentally increase the gap between what they pay and what they actually owe. This justifies given them a closer look and trying to find "red flags" in their behavior (the details of their current and past returns, and evidence of other economic activities) that would indicate probable under-reporting. In contrast, skin color has no plausible direct causal relationship to whether a person has the means, motive, and behaviors of a person that would use tax reporting to steal from the Fed. Whatever, correlations might exist would be in the direction of white people being more likely, but that is highly indirect and incidental to the actual causal factors of income. Thus, use of race in this case would be unethical because it targets people at a group level who often do not have any of the actual qualities that are causally relevant to the behavior under investigation.

The other train of thought in this tread (which I mentioned in the OP) was that this strategy provides the best bang for the buck. Another way of saying this is that we benefit at the expense of others.

No, that is not a way of saying it. The "others" in question are dishonest thieves trying to steal from us or negligent people causing us harm. We are protecting ourselves from others. The IRS is not going after "groups". They are going after individuals cases in which their are indicators directly related to likely under-reporting. Among those instances of people with suspected under-reporting, they must decide whether any plausible result will wind up costing the Fed more than it recovers. If they go mostly after those instances where the cost is less than what is recovered, this will happen to result in a higher % of the rich getting audited. But again, the rich that get selected are being audited because of specific info the signals under-reporting, not simply for being rich.


Which is odd when juxtaposed next to the evil 1% meme. If they are so powerful and beyond reproach why are their audit rates do high?

Total strawman of the arguments about the 1%. The argument is not that they have absolute direct authority over every aspect and every person in government. The argument is that their power is extremely disproportionate to their 1% of the population that they comprise. IOW, if they had 60% of the total power, that would still mean they have 60 times the power that they should in any just and remotely democratic society. Yet, it would still allow for 40% of the total power to be used against their interests. Since the IRS audits are a tiny fraction of the government power, it could even mean that those audits are completely outside their power, while other areas are almost entirely under their power. Regardless, the evidence suggests that they are actually using some of their power to constrain the IRS. The power of the rich is likely why their audit rates are not nearly as high as they rationally should be given the indicators of % of them who are actually under-reporting and ripping us all off for massive amounts. Their audit rate should likely be closer to 25%-30% rather than 12%. IOW, their power stops about half of the audits against them that should occur in a just and rationally acting government.
 
I see no big jump, just an illusion of one caused by the top categories being open ended.

Seeing the curve would be nice. It's probably a power law, so my point would still apply.


No it doesn't support your point. The power law curve (a non-linear relationship) would be a meaningless byproduct of the fact that the income scale being used is itself a non-linear, non-interval, categorical scale in which the amounts between the midpoint of each scale category varies wildly along the scale and has a massive jump from between the last and second-to-last categories. This is was causes the corresponding massive jump in audit rates between those categories. Imagine that the income scale was actually continuous and linear, such that it went up is gradual and even intervals. Now imagine that the audit rates went up in a similar gradual and linear way along with income. If you took that perfectly linear relationship but then collapsed people it into the type of non-interval categories of income shown in that Table, it would show exactly the pattern your looking at.

Finally, let's suppose that proper interval scales for each variable did still show a non-linear relationship. That would in no way show any unfair or unjustified targeting of the wealthy. Such an inference requires the added assumption that the relationship between income and both the probability and the amount of under-reporting follow perfect linear patterns. There is no reason to assume that. It is highly plausible that they are non-linear. For example, if your income is $35k and you file a 1040EZ with the standard deduction, and my income is $3,500,000 and I file all kinds of complicated forms with thousands of itemized deductions.
My income is 100 times yours. That gives me 100 times the means and motive to under-pay what you owe by a sizable amount in absolute dollars (which is what the IRS should care about). However, the complexity of your filings could easily give you thousands of times the opportunity. That makes you at minimum thousands of times more likely than me to be hiding sizable amounts from the Fed. And probabilities combine in a multiplicative way, such that the 1000 times more opportunity X the 100 times more motive and means results in 100,000 times greater probability that the IRS will recover large sums by auditing you versus me.
The fact that the actual difference in audit rates between those income levels is only a factor of 10 is almost certainly well below what the justified difference in rates should be if the IRS was doing their job of trying to most efficiently reduce the paid-versus-owed gap.
 
Seeing the curve would be nice. It's probably a power law, so my point would still apply.

A power law looks reasonable for that data but that's not the same as saying there's a big jump.

True. You think it's completely justified? My hunch is there are a lot of tax professionals (accountants and lawyers) that have a vested interest. These people look out for their own. A great way to get a job at a cherry firm is to do a stint at the IRS. At the upper end of the IRS there is probably a revolving door like most government agencies i.e. the SEC and investment banking. At the lower end the IRS has a union so you know political shenanigans transpire. There was a report by the Treasury Dept not long ago that showed the number of IRS agents who get away with willfully not paying any taxes. I was surprised. I'll look for it.
 
ronburgundy, you posted a lot of text. I appreciate the effort, sincerely. I'm not in the mood to go through it tonight. I'll do my best to read it when I can. :)
 
A power law looks reasonable for that data but that's not the same as saying there's a big jump.

True. You think it's completely justified? My hunch is there are a lot of tax professionals (accountants and lawyers) that have a vested interest. These people look out for their own. A great way to get a job at a cherry firm is to do a stint at the IRS. At the upper end of the IRS there is probably a revolving door like most government agencies i.e. the SEC and investment banking. At the lower end the IRS has a union so you know political shenanigans transpire. There was a report by the Treasury Dept not long ago that showed the number of IRS agents who get away with willfully not paying any taxes. I was surprised. I'll look for it.

Note that the intervals were a log scale. A simple linear result overall would show up as a power law against a log scale.
 
True. You think it's completely justified? My hunch is there are a lot of tax professionals (accountants and lawyers) that have a vested interest. These people look out for their own. A great way to get a job at a cherry firm is to do a stint at the IRS. At the upper end of the IRS there is probably a revolving door like most government agencies i.e. the SEC and investment banking. At the lower end the IRS has a union so you know political shenanigans transpire. There was a report by the Treasury Dept not long ago that showed the number of IRS agents who get away with willfully not paying any taxes. I was surprised. I'll look for it.

Note that the intervals were a log scale. A simple linear result overall would show up as a power law against a log scale.

Anyone have the numbers on how much the IRS actually collects on mid to upper mid incomes vs .01%? My hunch would be that the 1%, not the .01%, is where the money is at. Seems like a normal distribution skewed to upper income would produce the best bang for the buck. How much motivation is there to spend a lot of resources to catch a trophy fish? Probably a lot.
 
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