In the midst of tax season, many are understandably concerned about the possibility of processing difficulties delaying their returns. For low-income families earning less than $25,000 a year, though, there may be more cause for concern.
According to Syracuse University’s Transactional Records Access Clearinghouse (TRAC), this group is five times more likely to be audited by the IRS than the general population.
On average, TRAC discovered that only 13 out of 1,000 returns filed by taxpayers earning less than $25,000 were audited for the fiscal year that concluded on September 30. For taxpayers earning more than $25,000, the audit rate was 2.6 out of 1,000 returns.
Because the IRS is performing more “correspondence audits,” which include simpler reviews of tax returns conducted via letters and phone conversations rather than in-person visits, this is happening.
Taxpayers who received EITC benefits accounted for more than half of all IRS correspondence audits last year, according to the Taxpayer Advocates Research Center (TRAC).
President Biden signed the $1.9 trillion epidemic relief bill known as the American Rescue Plan last year, which included an expansion of the Earned Income Tax Credit (EITC). With this year’s tax season drawing to a close on April 18, more people than ever before could find themselves on the receiving end of an audit from the Internal Revenue Service.
There’s a reason why EITC returns are more likely to be audited than regular tax returns: they claim a tax credit. For example, according to the conservative Heritage Foundation, up to half of all tax returns claiming the credit was either over-or under-reporting it.
The question is, “How equitable is the tax system?”
According to TRAC co-director and Syracuse University professor of managerial statistics Susan B. Long, the greater rate of audits among low-income taxpayers raises concerns about fairness and efficient use of scarce resources.
A tax system in which low-wage earners pay a considerably larger percentage of their income in taxes is unfair, right?? ” Long said in an interview with CBS MoneyWatch… “And how does it affect the public’s faith in the government?”
“At the same time, this is incredibly foolish,” she continued, “when you don’t provide the agency with the budget to fairly execute the tax laws.”
After a brief silence, TRAC directed a blog post about audit rates from the Internal Revenue Service. The IRS found that from 2010 to 2015, taxpayers earning more than $10 million had “significantly higher audit rates” than taxpayers in any other income bracket.
Your chance of an audit
A smaller workforce has contributed to a lower likelihood of an IRS audit over time. In the fiscal year 2021, the agency has 82,000 employees, down from around 94,000 employees in 2010. TRAC stated that the audit rate has dropped progressively, even for millionaires, due to a lack of agents on hand.
TRAC reports that the number of persons earning more than $1 million has increased by 50% in the recent decade. As a result, just around 14,000 million-dollar tax returns were audited last year, compared to about 41,000 in 2012, according to a study.
As a result, chances of being audited have decreased regardless of your income level. According to Jackson Hewitt, the pandemic will reduce the audit rate to 0.2% in 2020. This is compared to an audit rate of roughly 0.9% in 2009.
Even concentrating on auditing low-wage workers raises the question of both efficiency and fairness, according to Long. The IRS, after all, has a greater incentive to collect delinquent taxes from wealthy people.
The Biden administration’s Build Back Better proposal, which would have been largely funded by enhancing IRS tax enforcement, was based on this concept.
Spend $80 billion on the IRS to hire more specialist agents to combat tax evasion and to upgrade the agency’s technology, as proposed by Rep. Peter King of New York.
According to the White House, it may bring in an additional $400 billion in revenue over the next ten years. With Congress deadlocked on the Build Back Better Act, it’s uncertain if the IRS will receive any additional funds.
According to Long, the IRS has a serious problem when it doesn’t have enough people to do a good job.
Customer service at its most rudimentary
In her report to Congress earlier this year, National Taxpayer Advocate Erin Collins listed correspondence audits as one of the IRS’s top concerns. She remarked that the people that are audited are frequently the lowest-earning people in the United States. There is a “least amount of resources” dedicated to “the highest number of examinations,” she discovered.
Because of this, taxpayers with the greatest need for assistance receive “the lowest degree of customer support,” according to Collins’ analysis.
Even if you’re a tax expert, receiving a letter from the IRS might be a bit of a shock, according to Long. Correspondence audit recipients frequently have difficulty getting answers or tracking down information they supply to the IRS, Collins said. Last year, even communicating with the IRS was nearly impossible.)
Long called the concentration on the poorest families “unbelievable.” Does it really make sense that the rate for everyone else is five times as high?”