> [Surprise, surprise, the government has found another way to treat poor
> people unfairly.]
>
> World Socialist Web Site http://www.wsws.org
>
> Poor in US more likely to face tax audits
>
> By Shannon Jones
> 22 April 2000
>
> New statistical evidence demonstrates that the net result of the so-called
> reform of the Internal Revenue Service (IRS) has been a further shift in
> the tax burden from the wealthy to the working class and sections of the
> middle class.
>
> With the support of the Republican Congress and the Clinton administration
> the Internal Revenue Service Restructuring and Reform Act took effect in
> 1998. At the time proponents touted the measure in populist terms,
> declaring that it would end the harassment by federal tax collectors of
> workers and
> small businessmen. In fact the opposite has been the case.
>
> The results of a study conducted by researchers at Syracuse University
> reported in the April 16 edition of the New York Times show that for the
> first time ever the IRS audited a higher rate of returns of low-income
> people than those of the rich. In 1999 the IRS audited returns of 1.36
> percent of people making less than $25,000. That compares to an audit rate
> of 1.15 percent for those making more than $100,000. This is a remarkable
> turnaround, considering that in the late 1980s the audit rate for the upper
> income taxpayers was more than 11 percent.
>
> Small, unincorporated businesses with less than $25,000 in annual sales
> were more likely to be audited than businesses with more than $100,000 in
> annual sales-a 2.7 percent audit rate for the small enterprises compared to
> a 2.4 percent rate for larger firms. At the same time only 1 in 66
> corporations was audited in 1999, the lowest rate in 86 years.
>
> In the increasingly unlikely event they are caught, wealthy tax evaders
> face little prospect of being penalized or having their assets seized. In
> fact, levies, fines and seizures have fallen dramatically. The number of
> levies of bank accounts and other assets carried out by the IRS to collect
> past due taxes dropped 86 percent over the past two years. Seizures of
> property have fallen 98 percent during the same period.
>
> Corporations have interpreted the shift in IRS policy as a green light to
> avoid paying taxes. According to recently released figures, total taxes
> paid by US corporations fell by 2 percent last year, despite record profits.
>
> The indulgent attitude shown by the IRS toward the wealthy has led to a
> proliferation of tax avoidance schemes by US corporations. According to a
> report published in the April 14 edition of USA Today, large investment
> houses and banks are marketing shady tax plans to businesses:
>
> "This industry has boomed because promoters are selling these deals for
> contingency fees, which means there are no up-front costs to the companies.
> If the transactions go through, some promoters get as much as a 50 percent
> cut of the tax savings-if the companies get away with it. And many
> executives are taking the risk because the odds that the IRS will challenge
> a deal are slim."
>
> In one example cited by USA Today, Compaq Computer Corp. bought 10 million
> shares of Royal Dutch Petroleum and sold them a few hours later for a loss
> of $1.9 million. However after taking a credit for paying $3.4 million in
> taxes to the Netherlands the company came out $1.5 million ahead on the
> deal.
>
> As a result of such dodges there has been a widening of the gap between
> profits reported by companies to their stockholders and the amounts
> reported to the IRS. In 1999 the difference came to $122 billion. That
> figure represented twice the gap that existed in 1995.
>
> The go-soft approach shown by the IRS toward corporate tax cheats is in
> marked contrast to its increasingly tough attitude toward the poor. The
> Clinton administration and Congress have mandated that the IRS take a
> harder line against so-called abuse of the earned income credit, a
> deduction available to lower paid workers. Bowing to claims by the
> Republican right that many poor people were illegally claiming the earned
> income credit, Clinton proposed the IRS increase audits of low-income
> families to fight the alleged fraud.
>
> According to the Times, "the IRS is scrutinizing the earned income credit
> with such wariness that it is sometimes denying the credit to people who
> are legitimately owed it on nothing more than suspicion, according to
> several low-income taxpayer clinics run by law schools."
>
> Few poor people have the resources, the Times noted, to fight the IRS and
> often give up when they are unjustly denied the credit. These cases are
> then added to the list of alleged instances of fraud and used by the
> extreme right to justify further cuts in aid to the poor.
>
> Meanwhile the IRS has reduced the number of face to face audits it conducts
> of wealthy tax payers. These audits require highly trained investigators
> able to spot complex tax dodges. The number of these audits declined
> sharply last year, continuing a long-term trend toward more lenient
> treatment of the rich. In fact, budget cuts carried out by both Democratic
> and Republican administrations have reduced the size of the IRS staff by 31
> percent since 1988.
>
> It is increasingly common for the rich to understate the value of gifts in
> order to avoid paying taxes on property passed on to heirs. Recent
> legislation has made it even easier for wealthy individuals to avoid estate
> taxes.
>
> Due to staff cutbacks the IRS has just 78 lawyers available to audit more
> than 3,300 gift tax returns filed by wealthy individuals. Of gifts valued
> at between $600,000 to $1 million, only 1 in 55 is even audited. Under
> these conditions many rich people do not even bother to report their
> taxable gifts at all.
>
> The Taxpayer Relief Act of 1997 gives the IRS just three years to audit
> gift tax returns. Previously the agency could challenge such returns for an
> extended period of time, sometimes decades. This state of affairs has
> encouraged many wealthy people to deliberately undervalue assets in hopes
> of avoiding taxes.
>
> A Southern California Law School professor said many wealthy business
> owners "will first kind of muck up much of their business" in order to
> justify declaring a much lower value before passing it on to heirs. He
> noted that rich people will often signal to appraisers whether they want a
> high or low estimate, depending on the purpose-tax avoidance or financial
> planning.
>
> For the full text of the Syracuse University study see:
> http://www.trac.syr.edu/tracirs/index.html
>
>
> __________________________________________________
> No real social change has ever come about without a revolution.
> --Emma Goldman