IRS Just Not Bothering To Audit Rich People At All Now

Attention Joe Biden transition team. Not to jinx anything.

Now that we know Donald Trump only paid $750 in income taxes each of his first two years in office (I brain-farted and typed "terms" at first, so if democracy is abolished, blame me!), it's worth noting that he's got plenty of company. According to IRS data analyzed by David Cay Johnston, the financial journalist who has so much fun skewering Trump on MSNBC, hardly any of the richest Americans need to worry about ever facing an IRS audit.

As Johnston notes, among American households making over $10 million a year (that would be the 23,400 richest, with an average income of $30 million each), the IRS audited a whopping seven of them in 2018. Not seven percent . Seven, like the Brad Pitt-Morgan Freeman thriller. That's .03 percent. Los Angeles Times columnist Michael Hiltzik points out that's roughly the odds of being hit by lightning in any given lifetime. Which would at least cook the rich for easier eating.

As ProPublica reported back in 2019, the decline in audits for the rich predates Trump. Congress's repeated budget cuts for the IRS have led to staff reductions, so fewer IRS agents are available to do audits. Instead of pursuing more audits of the wealthy, though, which would have the benefit of recovering big bucks for the Treasury, the agency has instead focused on auditing lower-income taxpayers, possibly because folks under the poverty line are just no good at hiring lobbyists.

Hiltzik notes that households with "taxable income below $25,000 were audited at nearly 10 times the rate of the richest households, even though their average taxable income came to about $11,000 each." That's roughly a third of all audits. Worse, he explains,

Targeting low-income taxpayers won't do much to close the so-called tax gap — the difference between what the government expects to collect in taxes and what it does collect. The IRS has estimated the gap at about $441 billion a year in tax years 2011 through 2013.

True enough, but it will certainly make poors think twice before they file for the Earned Income Tax Credit, which Republicans are certain is being misused, so congressional Rs have pressured the IRS to audit low income folks.

The disparity has only gotten worse under Trump, Johnston notes. In 2015, the richest Americans had an 8.16 percent audit rate, a far cry from the .03 percent rate for 2018. Joe Biden is already planning to step up IRS enforcement , to bring in some of that missing revenue.

And even among the very wealthy, Johnston explains, some folks are able to fly even more easily under the IRS's radar. CEOs of publicly traded corporations, for instance, have their earnings reported to the IRS. But some lucky duckies just happen to have the very same tax advantages Donald Trump does, and which Trump lobbied for while he was still just an annoying real estate mogul bent on spending down his father's wealth. People who are the hardest to identify as tax cheats share a few financial characteristics, Johnston says:

• They own private businesses with no pesky requirements to report to stockholders

• They hide their money using "hundreds and in some cases thousands of separate corporations and partnerships in many different locations"

• They operate both in the US and in other countries, to better take advantage of different tax rules

• They own lots of "commercial real estate because the gains from selling property are not automatically reported to the IRS, unlike wages and dividends"

• They file tax returns that superficially look "accurate, even clean as a whistle."

In the meantime, many wealthy Americans blithely ignore the requirement to file taxes at all, because for the most part, nobody's bothering to enforce the tax laws when it comes to the rich. Says Johnston:

[About] 1 million rich Americans didn't even bother to file income tax returns during Barack Obama's last years in office. America's tax police, the near toothless Internal Revenue Service, are so short-staffed that the inspector general says they aren't even trying to make the scofflaws pay the estimated $47.5 billion they owe.

Hiltzik explains the IRS has simply given up, at least when it comes to "taxpayers who are manifestly favored by members of Congress." That May 2020 inspector general's report laments, insofar as bureaucratese allows lamentations,

IRS research studies from decades ago noted that at that time, the IRS pursued most nonfiler leads. However, with some exceptions, that no longer appears to be the case.

That sounds like the sort of bullshit up with which a Biden administration should no longer put.

[ DC Report / LAT / Reuters ]

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