IRS says it's too expensive to audit rich people so it targets the poor instead
Usually, any discussion of tax returns these days focuses on Donald Trump, his failure to release those returns, and the truly Herculean efforts by his administration to make sure they never see the light of day. But there's an entirely different — and equally troubling — discussion to be had when it comes to tax returns: If you're poor, the IRS wants to audit your tax returns. If you're rich, not so much.
That's according to a new report from ProPublica that examines why poor people are audited at about the same rate as the rich. The answer is as predictable as it is unsatisfying. It costs too much to audit rich people.
Earlier this year, ProPublica dug into audit rates based on location and found that the most heavily audited place in the country was an impoverished county in rural Mississippi. This built on their 2018 reporting that showed those who claimed the earned income tax credit (EITC) — people earning around $20,000 per year — were audited as often as those who earned 20 times as much.
ProPublica's initial reporting got results. Lawmakers demanded IRS Commissioner Charles Rettig look into the issue and provide a fix. Rettig said yes but then returned to Congress with a report that said the IRS doesn't have a plan to fix it and won't unless it gets more money.
The IRS gets the most bang for its buck by auditing poor people because it doesn't cost very much to do so. It can use "relatively low-level employees" to audit EITC filers, who represent 39% of all audits the agency conducts. The audits are conducted by mail, and they're relatively swift.
In contrast, auditing rich people takes time and expertise, and the underfunded agency says it can't do it.
While it's true the IRS needs more money to function effectively — the GOP has cut its budget for the last eight years — there's also an issue of fairness. Solving the budget crunch by auditing poor people in droves while eschewing dealing with the complexities of the tax returns of the rich simply isn't right. But Republicans don't care.
Back when they still controlled the House, the GOP came up with a plan to require the IRS to verify the income — which is a core function of an audit — of literally everyone who filed for the EITC, meaning that anyone who claimed that credit couldn't get the money until the IRS managed to examine the income of 28 million people. This was despite the fact that although EITC filers represent 39% of all audits, they represent only 7% of audits where the IRS determines additional money is owed. The cost of mini-auditing 28 million people would likely far outstrip the money recovered.
In contrast, the IRS' failure to effectively audit corporations — both a casualty of budget cuts and a policy goal of Republicans — does hurt the nation's bottom line. A recent study found the agency's lack of enforcement actions against big business has led to a loss of over $34 billion in tax revenue.
In the end, GOP math is quite simple. They want poor people to suffer and are happy to expend time and money to make them do so. They want rich people and big businesses to function without any oversight and are happy to forego money in the nation's coffers to make that happen.
Published with permission of The American Independent. Attribution: Lisa Needham.