This story originally appeared on LX.com
Filing taxes can be stressful as complicated US tax laws convert simple formulas into quadratic equations. However, if your fear stems from fearing that a filing mistake could turn into a painful exam, you can probably stop worrying based on recently released figures from the Internal Revenue Service (IRS).
Over the past decade, your chances of getting an exam have gone from low to virtually none.
To be clear, no one is advocating that you are trying to defraud the IRS. Chances are that this won’t turn out well. However, according to a March 2021 Treasury Department report, only 1 in 225 individual returns (0.4%) have been audited by IRS staff, with nearly half of those returns belonging to filers applying for Earned Income Tax Credit (EITC). The exam rate for those earning less than $ 200,000 who did not claim the EITC was even lower, approximately 1 in 369 applicants (0.3%).
According to the Ministry of Finance, of more than 199 million tax returns in the 2019 financial year, only 771,095 tax returns were audited – a decrease of 44% compared to the 2015 financial year.
While the IRS has automated some of its review processes to machine-detect large reporting anomalies – and tax fraud can still result in severe financial penalties and jail terms – the IRS has far fewer people overseeing it than it has in decades. In addition, fewer customer service staff are working to help taxpayers navigate one of the most complex tax systems in the world.
According to Syracuse University’s Transactional Records Access Clearinghouse (TRAC), the number of IRS financial agents fell 43% between September 2010 (14,749 paid employees) and September 2020 (8,350 paid employees).
“(IRS) cuts have seriously undermined the agency’s ability to administer tax laws in a fair and effective manner,” wrote a recent TRAC report. “At the same time, Congress has given the IRS new responsibilities, including managing major changes to tax law and sending repeated rounds of stimulus payments to millions of taxpayers.”
Tax experts and watchdogs have warned that the incentive to cheat – especially among high earners and corporations – has risen as audit rates decline. And they say it could cost the government up to $ 1 trillion in annual revenue that could otherwise fund government programs related to infrastructure, family support, or community service.
The early 2021 data also shows a 14% decrease in tax prosecution and a 32% decrease in tax convictions year over year, continuing a decade-long decline in enforcement.
“Budget cuts have severely undermined the IRS’s ability to enforce the country’s tax laws and help taxpayers navigate a voluntary compliance system,” said Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities, one left. leaning Washington think tank. “A rebuilt IRS could help fund key national priorities … and restore public confidence in the fairness of the tax system.”
Biden’s Proposal: Fund the IRS to Curb Millionaire Cheats and Attack National Deficits
As quickly as the American working class exam rates have fallen, the American millionaires exam rates have fallen even faster.
Although filers with an annual income of more than $ 1 million were screened six times more often than those earning less than $ 200,000, the 2.4% screening rate for multi-million dollar earners was only a quarter of the 9.6% Rate for the 2015 financial year.
As part of his American family plan, President Biden has called for closer scrutiny of America’s $ 637,000 million tax investigators and large corporations that have also conducted far fewer audits in recent years. Nearly two-thirds of the country’s 755 largest companies – companies with assets over $ 20 billion – were not audited last year, compared to 93% audited by Syracuse in 2012, according to TRAC.
The Biden government proposed increasing IRS funding by $ 80 billion over the next decade, with three-quarters of the spending earmarked for enforcement. The pledge says the government will generate a return of $ 4 for every dollar invested.
The analysis of return on investment claims varies widely, but the non-partisan Brookings Institute suggests that regardless of the exact collection numbers, the money would be well spent.
The case for less enforcement
Biden’s calls for stricter tax enforcement have met criticism from Republicans, who are concerned about growing government budgets as well as the growing amount of personal information the government has been collecting.
“I don’t mind increasing staff numbers to improve service to taxpayers, but I am against more enforcement and intelligence gathering,” said Chris Edwards, director of tax policy studies at the Cato Institute, a libertarian think tank in Washington.
Edwards added that only 10% of Biden’s proposed budget increases would be used for “taxpayer services” such as application filing, legal counseling and education.
Other reviewers tell NBCLX they are concerned about the amount of information the IRS gathered during an audit and the way the agency protects personal information.
“The only way the IRS can get (an exam) is to know everything there is to know about a person’s life and finances,” said Daniel J. Pilla, founder of the Tax Freedom Institute and author of How to Win Your NBCLX Tax Audit in an Email. “Should citizens give 100% of their privacy to the federal government to facilitate tax preparation?”
Pilla admits that underreported taxes are costing the federal government’s revenue, but claims that this is due to confusion rather than fraud. The IRS reports a nationwide compliance and coverage rate of 98%.
“People are screwing themselves into complying with our massive tax laws,” Pilla wrote in a recent paper for the National Review. “In 2019, more than 67 million Americans sought some form of help with IRS compliance. Only 1,800 have been charged with tax crimes. It is clear that the IRS can gain a lot more from teaching people to obey than from grinding them into powder when they don’t. “
Whe doesn’t the IRS just do my taxes for me?
You can probably find Democrats and Republicans agree on one tax issue: America’s Code is overly complicated, with too many loopholes.
Compared to most other developed countries, American tax laws are far more complex, and self-filing requires a lot more effort and knowledge.
Why doesn’t the federal government just take over our taxes for us like the governments of some other industrialized countries do?
It seems that every time elected leaders propose simplification of tax legislation, their efforts are subject to intense lobbying – from corporate interests and / or members of Congress trying to gain an advantage for their constituents. President Trump’s promise of a simple postcard-sized tax return met a similar fate and never came close to reality.
“The simpler the tax code, the less confusion there is and the more people believe that billing is fair and equitable,” Pilla told NBCLX. “If people find it easy to obey the code and believe it’s fair, the chances of cheating are remarkably reduced.”
Update: Corrected this article to reflect a 43% decrease in IRS sales agents from 2010 to 2020. In an earlier version, the reduced positions were incorrectly specified.
Noah Pransky is the National Political Editor for NBCLX. He reports on Washington and state politics for NBCLX. His investigative work has won national Murrow, Polk, duPont, and Cronkite awards. You can contact him confidentially at [email protected] or further Facebook, Instagram, or Twitter.