David Cay Johnston on current IRS enforcement

[Number Six]

I read this report earlier; when was a government agency like this ever so starved of necessary resources to do its job?

Auditing the Working Poor
Now let’s compare the audits of people in Trump’s income class with the working poor, defined as households with incomes under $25,000. They were the subject of almost a third of all IRS audits even though average income was just $12,600.

The audit rate for poor families is 0.28%. That’s nine times the audit rate for the richest Americans.

This is a dramatic shift from the recent past. Under Obama in 2015, America’s richest households were 270 times more likely to be audited than under Trump, my analysis of IRS Data Book tables data shows. That year 8.16% of these households had their tax returns audited, not 0.03%.

These vast disparities are just one aspect of a many-sided story about the myth of the all-powerful IRS and how a particular class of rich Americans, a class that includes Trump, almost always wins when they play what in tax world is called audit roulette.

The cold hard truth is that the richest Americans today face a teensy-weensy risk of being detected if they cheat. The hardest tax cheating to detect involves people in a particular class. It is a class with privileges Donald Trump lobbied for and testified about to Congress. The taxpayers who are by far the hardest to identify as cheats share these characteristics the IRS is ill-equipped to address:

Own their enterprises lock, stock and barrel, giving them total control with no independent verification of revenue
File tax returns that appear on the surface to be accurate, even clean as a whistle
Make use of hundreds and in some cases thousands of separate corporations and partnerships in many different locations, a tax evasion helper that will be explained later in this series
Operate domestically and abroad where tax treaties, rules on delaying reporting income on tax returns and mismatches between rules of different governments create opportunities to hide money
Own commercial real estate because the gains from selling property are not automatically reported to the IRS, unlike wages and dividends
Trump fits those conditions to a T. Later in this series, we’ll explore just how he always benefitted from the ways our Congress has instructed the tax police to operate.

Presidential Powers
Now add to all this Trump’s powers as president. He appoints the Treasury secretary and the IRS commissioner, who had been a Beverly Hills specialist in helping suspected tax cheats avoid indictment. Trump also recommends how much money the IRS gets and how it will be allocated among various functions such as processing refunds and collecting unpaid taxes. This and more means Trump exercises enormous power and influence over which potential tax cheats, if any, will be found. Because he also appoints America’s attorney general, Trump influences which suspected tax cheats will be prosecuted.

In addition, Trump’s administration is violating an anti-corruption law enacted 96 years ago after the Teapot Dome scandal. That law gives certain people in Congress the same right he has to inspect any income tax return. At least three staffers on the Congressional Joint Committee on Taxation work at the IRS just to inspect tax returns, especially those seeking individuals refunds of $2 million or more, for badges of fraud. Trump got a nearly $73 million refund; he recently confirmed the IRS wants it back.

Trump refuses to allow the chairman of the House Ways and Means Committee, which writes our tax laws, to inspect his tax returns. The committee is suing for access. It is the only known case of a tax return being withheld by any president since 1924 when Calvin Coolidge was president. That sentence is qualified only because the IRS is stalling on DCReport’s Freedom of Information Act request for a single number – how many times has the IRS refused or declined to turn over a tax return request in writing by the appropriate lawmakers and staff.

Who Gets Audited
That 0.03% audit rate for America’s richest families is misleading. It overstates the risks to people in Trump’s situation.

Many in that highest income group have very limited opportunities to cheat. About a sixth of these rich Americans are CEOs of publicly traded companies or otherwise employed at huge salaries. Their pay is independently reported to the IRS. This means that they are more like Joe and Joan Sixpack whose taxes are withheld before they get paid.

Opportunities for workers to cheat almost nonexistent, even for those making more than $50 million in salary and bonus as more than 200 workers have each year under Trump.

We cite these facts to give you a lens through which to focus as this DCReport series examines the state of Trump’s taxes and the capacity of the Internal Revenue Service, our national tax police department, to enforce the tax laws.

DCReport’s investigation into how Trump and others like him enjoy robust opportunities to cheat on their taxes with little risk of detection shows how for decades Congress has handcuffed our tax police. It’s as if your local mayor and city council told their police officers to focus on tricycle thefts, not violent crimes, and wouldn’t pay for testing equipment and chemicals in the crime lab.

We relied in part on a database maintained by the TRAC, the Transactional Records Access Clearinghouse at Syracuse University. DCReport donors generously contributed money to purchase access to that database and to pay a Rochester Institute of Technology student to organize the data for analysis. Much of the data TRAC gets had to be extracted from our government through litigation over the public’s right to know what our government is doing.

Tax Prosecutions Vanishing
From various official documents and interviews with tax officials, tax defense lawyers and accountants we found our government operates a system of tax law enforcement with these features:

Tax prosecution, never a major government activity and generally slipping for decades, collapsed under Trump
In 2016, the last Obama year, the IRS referred 2,744 tax cases for prosecution. Since Oct. 1, 2019, the IRS has referred just 231 cases
Justice rejected 162 of those cases, or 70%, for “insufficient evidence,” an extraordinarily and hard to believe justification since on average each case involved more than a year of detective work
Justice rejected an additional 28 cases because prosecuting suspected tax criminals isn’t a “national priority”
Justice Department’s own data shows it is pursuing just 29 new cases
More than half of IRS criminal cases in the last decade were about illicit proceeds from narcotics trafficking, money laundering and other criminal activity, not tax cheating by people who underreport their income from lawful activities or overstate their deductions
Last year Justice Department prosecutors obtained just 530 guilty pleas and convictions after trial, making the odds of an American adult being found guilty of a federal tax crime about one in 473,000
The public never heard about most of those cases because the Justice Department failed to publicize them
Almost 900,000 high-income Americans didn’t even file a tax return in the last three years of Obama
Virtually no effort is being made to collect the estimated $47.5 billion these prosperous-to-rich Americans owe. An Inspector General report says the IRS already dropped 42,600 cases and it is unlikely that any of the others will be pursued
Defunding America’s Tax Police
The reality is Congress has defunded America’s tax police. The IRS in 2018 had less than half the resources it did, relative to the size of the economy, as when Ronald Reagan was president in 1988, my analysis of federal budget data shows.

Over several decades, as anti-tax activist Grover Norquist persuaded Republicans to sign ironclad pledges to never raises taxes, these same officeholders have worked to make sure the IRS doesn’t have the tools or staff to make sure people and companies pay what the law says they owe. Trump personally lobbied for one key change creating an entitlement program for real estate investors that lets them live tax-free if they are rich enough and follow the rules, making his own tax behavior all the more curious.

The beneficiaries of this throttling of the tax police budget and hobbling its operations have been the thin and increasingly rich slice of Americans at the top, especially people who like Trump exert total control of their business affairs.

Republicans persuaded enough Democrats to go along in handcuffing our tax police through laws, some of them based on bogus testimony by people who said they were victims of abusive IRS tactics. By law, the IRS could not respond to the Senate testimony. Congress’ Government Accountability Office later wrote a secret report that showed the hearings were unreliable, Ryan Donmoyer of Tax Notes Magazine revealed in 2000. However, subsequent investigations by The Wall Street Journal, Tax Notes Magazine, The Virginian-Pilot and by me when I was the tax reporter for The New York Times showed the hearings were a sham from start to finish.

In response to the 1997 and 1998 Senate Finance Committee hearings led by the late Sen. William Roth of Delaware, and other hearings, Congress imposed all sorts of restrictions on IRS audits. Here are three telling examples we will explore later in this series:

IRS auditors who notice that a taxpayer reports income of under $100,000 but has mansions, fine art and more cannot use that to begin a “lifestyle audit.” One man was caught only because a mistress, furious that he didn’t keep a promise to buy her a condo, ratted him out to the IRS
Corporations must be told in advance what issues will be examined. If auditors find along the way evidence of tax owed for other reasons they cannot expand the audit unless they uncover clear evidence of criminality
While Congress authorizes what look to be major cash awards to whistleblowers who report tax cheating the program has added less than $1 to every $5,000 in taxes Uncle Sam collects and it takes more than a decade on average to pay these awards
The costs of these favor-the-rich policies even when they cheat are borne by the other 99% of taxpayers. Tax burdens could otherwise be eased through reductions in government spending for their benefit and in added federal debt.



https://www.dcreport.org/2020/10/30/how ... ax-police/

[jcolvin2]

I read this report earlier; when was a government agency like this ever so starved of necessary resources to do its job?

Especially considering that every dollar spent on the IRS yields $10+ to the Treasury.

[JamesVincent]

I was almost worried for a second. Then I realized that it's just the same old political bullshit as always.

[Duke2Earl]

None of this is news to anyone paying attention... The republicans have been gutting the IRS for years...since long before Trump. It's just gotten worse...much worse lately. One way to reduce the deficit would be to actually collect, or at least try to collect the income tax owed by law. The tax gap gets larger every year.

[Number Six]

I'm a little surprised that any member on this forum would regard Johnston's journalism as anything other than an objective and honest observer of tax compliance issues. He was a journalist with the NY Times then a professor. When the President wanted to release an old tax return he sent it to Johnston. I apologize if anyone regarded the post as political. I saw it as more indicative of the current state of affairs at the Internal Revenue Service.

[JamesVincent]

What exactly did you expect when the only example used is a political figure and the information used is easily disproven. NY Times says it all.