The Internal Revenue Service’s traditional focus of uncovering cheating by businesses and high-income individuals is shifting to issues likely to affect moderate and lower income taxpayers. Two declared targets of increased attention are the earned income tax credit, a program designed to benefit the working poor, and people who haven’t filed tax returns.
The earned income tax credit was intended as an incentive for lower income working families by giving them, in effect, a negative income tax. Qualifying individuals and families can actually get tax refunds in excess of the amount that was withheld from their paychecks. The program is yet another vainglorious effort to redistribute income from the wealthy to the poor. Unfortunately, a lot of folks lie about their circumstances in order to get bigger refunds and the IRS has paid little attention to this abuse in the past.
The other target group is folks who simply do not file income tax returns. This group has benefited mightily from the IRS’ strained resources in recent years. Inadequate manpower has meant a dwindling effort to follow-up on non-filers.
As laudable as this vigorous push toward routing out miscreants is, it results in IRS resources being reallocated from other, more traditional pursuits. The number of tax returns being audited is dwindling at a startling rate. Please permit a few statistics.
The number of audits planned for this year will be cut by 30%-40% from the already record low number carried out two years ago, the most recent year for which data is available.
Fewer than one in 300 tax returns will be audited this fiscal year, down from one in 217 two years ago and one in 63 in 1981. For wealthy individuals with gross income of $100,000 or more, fewer than one in 150 returns will be audited this year compared to one in 33 in 1992.
To further complicate matters, seasoned IRS agents are being used in customer service roles. Following the browbeating administered by Congress several years ago, the IRS has shifted tremendous resources into handling taxpayers with kid gloves.
While all of this may sound like sweet music to taxpayer ears, it really is not. We have a self-assessed tax system and taxpayers need encouragement to comply with the law. One encouragement is fear of an IRS audit. When that encouragement is not forthcoming, corners look inviting for cutting.
Well, so what? Well, plenty.
The government requires a certain amount of tax revenue to fuel the engine. When your neighbor isn’t paying his fair share, or anything at all, tax rates are increased on everybody else. The option of the government cutting expenses is not worthy of comment.
Hamstringing the IRS is a sign of our drift toward the society of “me” rather than “us.” Police are sued, while daily, they risk their lives in the line of duty, and likewise the IRS must perform the difficult task of separating us from our money without upsetting us. This is unadulterated poppycock. I strongly believe that we should obey the law and then we have nothing to fear from the police, the CIA, Secret Service, Gestapo or the IRS.
In parting, I wrote a column several years ago defending the IRS and saying that in 30 years of tax practice I had not experienced any of the horrors being alleged in congressional hearings about IRS abuses.
I took a fair amount of heat from readers who thought that defending the IRS was paramount to burning the flag.
To vindicate myself, I shall quote from a recent article in The New York Times, which says, concerning the Senate Finance Committee hearings that led to the IRS Reform and Restructuring Act of 1998, “Much of the most explosive testimony has since been discredited and a subsequent General Accounting Office report found no evidence of systematic mistreatment of taxpayers.”
THOUGHT FOR THE MOMENT
Then Jesus said to them, “Give to Caesar what is Caesar’s and to God what is God’s.”
— MARK 12:17
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is firstname.lastname@example.org.