One of the ways that the new climate change bill¹ raises money to pay for itself is by hiring more IRS agents to audit rich people. This will make up for the massive drop in audits of the rich that's been engineered by Republicans over the past decade.
This has conservatives in a panic. Over at National Review, Charles Cooke responds to a guy who says, contrary to widespread fears, audits are no big deal if you just tell the truth:
Markowitz says that he has “never understood the fear of an IRS audit.” Given that he is an IRS-enrolled agent — that is, that he makes his living representing taxpayers in front of the IRS — this should perhaps not be too surprising.... “Don’t lie,” he suggests. “How about just don’t cheat on tax returns?” But this, of course, misses the point. I do not “cheat” on my tax return, and I never have. I don’t “lie,” either. But I’m still terrified of the IRS. Why? Because the process of being audited — especially in-person, which this funding will increase — is an absolute nightmare.
OK, sure. No one looks forward to an IRS audit. But the new funding is strictly for audits of the rich. The commissioner of the IRS—a Trump appointee—says the new money will be used only to increase the audit rate of people making more than $400,000 per year. These are the kind of people who have legions of accountants to handle their taxes. There's no fear involved except the fear of possibly having to pay all the taxes they owe.
But this is the bit I found the funniest:
One suspects that, in any other circumstance, this [fear] would be intuitively obvious. Suppose that, tomorrow, the FBI announced that it intended to begin “auditing” millions of people to find out if they had committed any federal crimes....
But this is precisely what the IRS did back in the '90s. As part of a deal over the Child Tax Credit, Newt Gingrich demanded a higher audit rate of EITC recipients, who are almost exclusively part of the working poor. As I recall, Republicans were all for it.
Bottom line: Cooke has nothing to worry about unless National Review pays a lot better than I think. The people who ought to be worried are the rich, but they cheat on their taxes in very abstruse ways and have no reason to be viscerally afraid of audits since most of them never see an IRS agent in the first place. For the rich, audits are just dreary, formal negotiations between opposing lawyers in mid-Manhattan conference rooms. They get occasional reports from their accountants while they relax on their private beaches in the Bahamas, and that's about it.
¹Can we all start calling it this? I'm a Democrat, and even I can't stomach calling it the Inflation Reduction Act.
I have no idea if this is the case, but talking fees can add up--plus investments and/or family money.
The IRS has to go after off shore (and "on shore") tax havens, see Panama Papers. The same techniques people and companies use to hid from taxes are also the ones used by warlords and strong men and enables widespread corruption. That will make the Republicans apoplectic.
A lot of people making over $400k do not have "legions of accountants", maybe they have 1 accountant they see once a year to do their taxes (or rely on tax prep software). Most of the IRS targets will be small and medium sized business owners, especially those with the habit of comingling their business and personal expenses. Most high salaried folks are far less temping targets, since so much of their income is fully disclosed by their employer.
Inflation Reduction Act? Don't care that its a bull shit name, so long as they can sell it in November. How many altruistic names has the GOP used in the past for legislation that was mostly tax cuts for the wealthy?
I don't think most of the IRS targets will be small and medium sized business owners for two reasons. First theywill go after the biggest targets first because they have the highest potential for large wins (for the IRS i.e. more money recovered) and second, truely higher income employees tend to take a lot of their income in bonuses and stock options etc. these forms of income have more scope for tax deference/avoidence and, therefore, more potential to be illegal. As well, many/most small/medium business are professionals (lawyers, docotors, dentist etc.). They are infamous for loving tax avoidence schemes and, since many of these schemes are used by many people can be big wins for the IRS as well.
I am assuming the definition of small business will include only those owners with Gross Income in excess of $400K (store owners, small manufacturing enterprises, and of course professionals). Excluding senior executives making multiple $ millions per year, bonuses, stock options, deferred compensation programs, received by the rank and file high earners (like a typical bank VP) are accompanied by W-2 / 1099 disclosers from their employers, who do have armies of tax lawyers determining the tax impact of such arrangements and disclosing it to the IRS. Cut and dry from a tax compliance prospective. Tax shelters are extremely complex, and tax disclosure for participants are supported by investment sponsors with armies of tax lawyers. Your typical IRS agent is not going to crack that nut without substantial support from IRS/Treasury central office.
There are lots of people with incomes between $400k and $2M, so I would expect most of the run of mill tax audits to occur there because that is where the low hanging fruit exists. The really, really rich folks are going to be far better represented and capable of successfully taking the IRS to tax court if needed.
And note that $400,000 in gross revenue is at the "one guy with a pickup truck and a helper" level of entrepreneurship: the materials are often more than half the cost of the job for a lot of the construction/installation trades.
Agreed. I am assuming they will be targeting folks with Adjust Gross Income in excess of $400K. If they own a business, then that business would also be subject to review.
chances are if you have a small business and you're personal income is $400 K or north you aren't using "turbotax" to do the numbers. and that's not a lot of money to play around with from a tax perspective. if there's a problem it's almost certainly going to be on the business side rather than the personal.
Memorise and then search the phrase "Pass through tax entity" ...
The IRS gives huge numbers of deductions to businesses so that, essentially, profit is what is taxed.
Not gross receipts. Profit.
Why would you tink "most" small businesses are professionals? That has no basis in statistics. The US Small Biz Admin 2020 profile: https://cdn.advocacy.sba.gov/wp-content/uploads/2020/06/04144224/2020-Small-Business-Economic-Profile-US.pdf
As representing the largest volume and least-likely to be able to litigate forever, medium sized pass-through entity organised businesses are analytically a rather juicy target on a net-net basis within a current administration life-cycle. The down-side to this not being financial (more money will be obtained here by volume and ease than elsewhere), but rather political (reaction and numbers in voting).
Salaried staff under large firm employment are rather unliekly to have "illegal" compensation arrangements - as neither deferral nor minimisation is illegal (disliked by the Left but not illegal). There may be structuring the Corporate that gets unwound as overly aggressive pushing on interpretation of fuzzy langauge, but unlikely illegal as such
Perhaps if the revenue service is playing smart-and-self-interested to avoid or minimise backlash, they will indeed focus on firms of a larger size or on perhaps unpopular segments (financial services are always popular targets of Left and Right populism and also likely aggressive pushers on structuring).
Sorry, but I think you have this backwards. Business owners have plenty of opportunity to misclassify expenses, or book thing to the company that are really personal expenses. The IRS would be nuts to ignore them.
OTOH, stock options and bonuses are reported on W-2 forms. There's essentially no way to hide that from the IRS.
Yes, I think this is correct - dismissing the fear is perhaps easy, but USD 400k while very comfortable is not really rich and a tax audit can be quite easily costly and high-stress for the small busines owner for example (who are indeed doubtless cheating on the margins).
If you have one accountant and follow their advice on your tax return, you are immune to criminal charges of tax evasion, all the IRS can ask for is back taxes and interest. If they do, your accountant may have a problem though.
The people who fear audits are business owners and high net-worth individuals who make zillions and look for creative ways to either 1. not declare certain income and 2. do things with their money to avoid taxes. Naturally doing 1. gets you in a lot of trouble right off the bat. On nr. 2, there are some ways you can legally minimize your tax bill, but a lot of this stuff (setting up off-shore shell corporations, laundering into real estate, art, etc.) is very dodgy and won't stand up under the scrutiny of an actual audit, especially now that countries like Switzerland are more willing to cooperate with US authorities. Rich people have gotten away with tax murder for decades now while we salaried or wage-earning schlubs who can't fudge our own W-2s have to pay every last cent we owe.
And Cooke doesn't like audits because they're *unpleasant*? Have a nice, hot mug of STFU.
Yes this is exactly the issue. Regular folks have their income reported automatically and they have no chance to cheat.
False assertion making the false assumption that "regular folks" are mostly salaried employees
* Independent contractors may or may not have full reporting
* gig contractors as sub-set
* restuarant industry
* small self-employed / small business owners
What fraction of those bring in north of $400K salaries?
They will target mostly small to medium businesses, and a lot of solo-entrepreneurs. The Hamptons/Martha's Vineyard money will go untouched.
It will depend on how the IRS approaches this. High net-worth individuals may "incorporate", and so their audit could show up as an audit of a small business or an entrepreneur.
They typical attack, though, is that the IRS is going after family farms.
You're saying a lot of small to medium biz owners and solo entrepreneurs make over $400k/year?
In gross revenue, certainly: any HVAC installer has higher revenue than that. (80% of it is materials costs, but it's still revenue.)
Gross revenue is irrelevant here. The figure used to determine things like audit frequency is Adjusted Gross Income. This is calculated only for individuals, not businesses. A person's AGI from a business is calculated based upon the net income of that business, as calculated on Schedule C. Materials costs are subtracted on Schedule C, and will never show up in AGI.
Yes! Thanks for the dose of reality here.
Iirc both Bush admins (and Reagan?) required more audits for lower income as well. It's been par for the course watching the Right scream how this is going after families considering their track record.
Don't tell that to 55 year old hipster Tweeter Gritty is the Way. He is already claiming Dark Brandon's 87,000 man Secret Army are being commissioned to target the working poor with $600 Venmo transactions.
"The new enforcement budget for the IRS is aimed solely at the rich"
I find that headline likely naïve. During the next GOP administration, with a GOP appointed head of the IRS, can they not re-focus resources/audit targets?
Coincidentally, was just listening to a Robert Wright podcast where Mickey Kaus was explaining how awful this new enforcement money for the IRS would be. Kinda gives the lie to these "working class GOP" commentators like Kaus... (don't hate me for listening... they are genial if surprisingly uninformed).
Kaus Party 2023, starring Kidfucker Matt Gaetz & Pay for Play Kevin Mc Carthy.
Is Kaus still blowing goats?
I can buy the "Climate Change Reduction Act." CCRA makes more sense and is less loaded than IRA (is it an insurgency, or a retirement plan?)
And I'm all for enforcing the tax laws on the wealthy. And please don't cry to me about the poor, starving folks whose TAXABLE (not gross) income exceeds $400,000. Ditto for "small" business owners whose Taxable income is in that range. That's a lot of cabbage; those folks can afford to pay.
The $400k has to be based on AGI, not taxable income. Otherwise many people could just avoid audit by throwing in a bunch of phony deductions to get taxable income below the cutoff.
Or actually it should be based on non-adjusted gross income, since some of the adjustments could be phony
The Grift of the MAGI.
by O. Henry Paulsen
Amusing innumeracy of the populist Lefty position to put scare quotes around small in small business for tax income of USD 400k, in an economy of USD 23 trillion in which a "living wage" say plumbing contractor with a handful of skilled employees in any non-depressed economic zone should easily be touching on this level of taxable revenue (depending on facts). The problems of innumeracy and the mesmerising chimera of large numbers.
The 1% excise tax on stock buybacks will bring in more revenue, one suspects.
Over time, it will reduce inflation by lowering debt/GDP. Seems like a decent enough reason to call it the IRA and use it against conservatives.
One reason for calling it the IRA is political, of course, since inflation is high on the minds of voters, thanks as much to media's heavy breathing about it as to actual inflation. But another reason, I imagine, is that they are avoiding filibuster issues by rolling this in as a budget reconciliation measure, so it better have some economic impact, not just climate impact.
While I don't have a problem with the name, lowering the debt doesn't reduce inflation. Read _The Deficit Myth_.
Having dubbed it the Inflation Reduction Act, the Democrats should be hoping the Fed will be effective in actually reducing inflation.
I would bet actual small business owners have a lot of runins with the IRS already. A lot try to do the financial stuff themselves, and aren't necessarily good at it.
Perhaps we could say that Charles Cooke is in favor of defunding the IRS.
Come on folks this is not a tough call. There is legitimate tax revenue being left on the table because the IRS has not been able to really do its job for a decade or more. And auditing is part of its job and auditing rich people will almost certainly encourage people to be more careful about trying to get away with dubious practices and will bring in more money.
Nobody likes taxes and nobody likes doing them (well, the rich don't care because they farm out that task) but it is an essential part of the deal unless you are an anarchist or nut job libertarian (an anarchist in a Mercedes).
+1
Absolutely. I have tried and failed on the internet to start a wave of "the GOP has been defunding the police for decades" since the IRS is the police for rich people.
Use "'Defund the IRS' party" instead of GOP.
I always though "'keep rich people rich' party" is the best description.
By now it is also "defund the FBI".
Cooke's complaint is like a bank robber complaining the police are putting more cops on the robbery detail.
Paul Manafort admits spying on the Trump campaign for a Russian,
https://www.rawstory.com/trump-manafort-russians/
But it's OK, he only did it for the money.
I just knew Joe manchin was the type of Republican with whom Dems could make deals.
Speaking of cracking down on those who believe in abusing privilege, mar a lago has been raided. And I hope someone posts some video to put me in a good mood.
Reuters live view outside Mar a Lago: https://youtu.be/yMriudt4TBM
And he wasn’t even there? Dang. I was hoping to see the non-existent video of Trump not choking an FBI agent. Maybe trying to hold off the feds by throwing plates of ketchup.
Heehee!
Actually it's now being reported it's in response to "Eyes Only" classified documents being transported to his Florida residence - which is a definite no-no.
18 U.S. Code § 1924 - Unauthorized removal and retention of classified documents or material
U.S. Code
(a)Whoever, being an officer, employee, contractor, or consultant of the United States, and, by virtue of his office, employment, position, or contract, becomes possessed of documents or materials containing classified information of the United States, knowingly removes such documents or materials without authority and with the intent to retain such documents or materials at an unauthorized location shall be fined under this title or imprisoned for not more than five years, or both.
(b)For purposes of this section, the provision of documents and materials to the Congress shall not constitute an offense under subsection (a).
***********(c)In this section, the term “classified information of the United States” means information originated, owned, or possessed by the United States Government concerning the national defense or foreign relations of the United States that has been determined pursuant to law or Executive order to require protection against unauthorized disclosure in the interests of national security.*************
THIS is the pertinent section because it strikes at the heart of the republicans anger at HRC and her emails. Something they said negated her ability to be trusted.
It also may provide the impetus for Trump to end his future presidential aspirations. If found guilty he could say "move the charges to something less serious and I don't run again"
THAT way the NRC continues to pay his legal fees and he gets to protect himself.
He still has his political microphone
Still has the supporters who will give money to him
The timing of this raid after finding out that Gen Mark Milley wanted to resign after the Lafayette Square incident is unique. I think someone will GET to Trump to tell him his political career is over but he can still use his supporters to fund his business (criminal) ventures
Whatever. They got Capone on tax evasion, but it was enough to send him to Alcatraz.
Why his political career over? He'd most likely be fined, not imprisoned, in the event he's convicted, which is far from certain.
I hope it's more than merely document removal*, which, although should be treated more seriously, in fact has been committed on multiple occasions in recent years and has generally not been vigorously prosecuted per my recollection.
*I doubt that's really the main focus here, but time will tell. I think far more likely it's related to January 6th.
Sounds like the Jackboot Garland Injustice Department is staging the real insurrection against the true president, Donald J. Trump.
Why audit rich people? Because as Willy Sutton put it: "that's where the money is".
Hey, wasn't it reported a while ago (NYT?) that the IRS has been negotiating with Trump for years -- this is the "audit" he always said prevents him from releasing his tax returns -- over some $100 million deduction claim he made? As I recall this was separate from the $500 million the NYT said Trump skipped out on many years ago by undervaluing assets etc.
I've been in the camp not really caring if Trump gets charged with sedition (because I think it would be a court case that would last a lot longer than Trump will live) but I'd love to see the IRS emboldened to get tough with him about some of these tax issues. I think a few very big tax bills would hurt him a lot more than getting indicted.
I've been in the camp not really caring if Trump gets charged with sedition...
Plus, it would be far preferable to see him spend his golden years in a Georgia pentintery than a federal country club.
Increasing tax receipts from rich folk will help lower inflation in the way least hurtful to average americans.
We've been arguing for years that the democrats need better marketing. If the Republicans are going to insist that Biden and the democrats caused inflation, then calling the bill the Inflation Reduction Act makes great marketing sense.
Also, a person making $400,000 per year would probably still be in the working class.
$400K/yr puts you well within the top 5% of earners. That's not "working class" by any definition.
Cooke is like that butler on Downton Abbey; he now identifies so much with his masters that he fears for them and feels their pain.
While it's doubtful they even know his name.