The rich win again.

[newyorkguy]

Again, this is not about auditing returns. This is about increasing compliance by making it a lot more risky to under-report income. The example Charles Rossotti cited as to how this would work was the implementation in 1986 that dependents on income tax returns must have their social security number listed. Example: If you're taking your brother's kids as deductions, how would you get around having to provide an SSN?

Quote:

In 1986 the IRS began requiring children have SSN accounts in order to be claimed as dependents on an income tax return. The following year there were 7 million FEWER dependents claimed.

I think Rossotti expects total tax revenue would go up once the third party verification process was instituted. News editorials have called the logic "overwhelming." I agree. Gain more tax revenue, then worry about audits.

[Leftus]

Originally Posted by newyorkguy

Again, this is not about auditing returns. This is about increasing compliance by making it a lot more risky to under-report income. The example Charles Rossotti cited as to how this would work was the implementation in 1986 that dependents on income tax returns must have their social security number listed. Example: If you're taking your brother's kids as deductions, how would you get around having to provide an SSN?


I think Rossotti expects total tax revenue would go up once the third party verification process was instituted. News editorials have called the logic "overwhelming." I agree. Gain more tax revenue, then worry about audits.

Document matching is an audit. It's just a single scope audit. People will have to respond to the notices. Handle calls and disputes.

People do trade / provide the SSN of various offspring to various family members. Divorced couples who both claim the same kid also happens, and is a problem.

The point here is, people are going to have to work that program, or it's pointless to have it. I'm sure that it could eventually be folded into the automated under reporter program, eventually, once all the bugs and nuance is figured out.

The current state of the 1960s technology we call the tax system, is showing some wear. To have various programmers and analysts take time out of their current functions to prep forms and the databases to take in that data is one thing, to do that and then not use it is wasteful.

Keep in mind, the money collected by the IRS does not stay with the IRS, it gets tossed into the treasury. The funding it would take to do the coding on this program could be used to actually modernize the tax system or perhaps to actually do audits. Especially when the number of people who can do the coding on the old system decreases every year.

[Bob001]

Originally Posted by Leftus

Document matching is an audit. It's just a single scope audit. People will have to respond to the notices. Handle calls and disputes.
.....

This isn't complicated. Most working people get W2s that summarize their pay, and investors get 1099s that summarize their investment returns. This new form would be comparable for businesses. The presumption is that most businesses would comply with the laws because the odds of getting caught cheating would be very high. Disputes would be handled the way they are now, through negotiation, appeal and ultimately court. But businesses wouldn't be able to just make up numbers and say "Prove me wrong, if you can."

[Leftus]

Originally Posted by Bob001

This isn't complicated. Most working people get W2s that summarize their pay, and investors get 1099s that summarize their investment returns. This new form would be comparable for businesses. The presumption is that most businesses would comply with the laws because the odds of getting caught cheating would be very high. Disputes would be handled the way they are now, through negotiation, appeal and ultimately court. But businesses wouldn't be able to just make up numbers and say "Prove me wrong, if you can."

It's more complicated than you know. The basic concept is easy, it's in the implementation that we find the devil.

Is every deposit a taxable event? I don't know. The IRS would have to determine that, yes, every deposit, or a specific deposit, is a taxable event, create a proposed balance due, provide a Statutory Notice of Deficiency, provide appeal rights, and go from there. The US attorney can't just show up in court and say "they owe because we say they do and they haven't proven us wrong" without first doing some basic research into the income that is claimed not reported.

So if the taxpayer responds with some sort of reply of how the income was either reported elsewhere, or somehow non-taxable, we still need some sort of professional to review that response. And I don't think it is suitable for a GS5 correspondence examiner. But I'm sure you know more about how the IRS works than I.

[Bob001]

Originally Posted by Leftus

.....
But I'm sure you know more about how the IRS works than I.

I probably don't. But I'll bet the former IRS Commissioner does. And he thinks this would reduce fraud, and make it easier to identify when it happens.

Quote:

These reforms will over time reduce the level of unreported income closer to that of income that is reported by third parties, gaining approximately $1.6 trillion in revenue in the first 10 years, and will improve the way all taxpayers interact with the IRS. Revenue gained would be 12 to 25 times the cost.

https://www.bloomberg.com/opinion/ar...th-irs-reforms

[lobosrul5]

Originally Posted by Bob001

This isn't complicated. Most working people get W2s that summarize their pay, and investors get 1099s that summarize their investment returns. This new form would be comparable for businesses. The presumption is that most businesses would comply with the laws because the odds of getting caught cheating would be very high. Disputes would be handled the way they are now, through negotiation, appeal and ultimately court. But businesses wouldn't be able to just make up numbers and say "Prove me wrong, if you can."

It actually is pretty complicated. A business pays tax on profit. Its not just money coming in, its money going out. You get a 1099 from payment processors, but not for cash. Say a business has 30% of their revenue from cash, but they only report half of it. The IRS audits their inventory to calculate sales... oh but there's lots of theft around here! We didn't sell it, it walked out the door! They check their bank account for deposits... but what if the business owner spent that cash instead of depositing it?

Not just income tax, but local gross receipt tax gets hit really hard. But, since were going to a more and more cashless system its actually getting tougher.

Things like miscalculating depreciation values, intellectual property etc is where businesses can get really creative.

[newyorkguy]

Originally Posted by Bob001

Quote:

"These reforms will over time reduce the level of unreported income closer to that of income that is reported by third parties, gaining approximately $1.6 trillion in revenue in the first 10 years, and will improve the way all taxpayers interact with the IRS. Revenue gained would be 12 to 25 times the cost." - Charles Rossotti

https://www.bloomberg.com/opinion/ar...th-irs-reforms

The plan is so simple, editorialists have called the logic to implementing it "overwhelming,' but it just doesn't pick up support. Sadly, that is being demonstrated in this thread. People find all sorts of reasons to object to this, and most of those reasons are based on a misunderstanding of what the plan is all about.

[lobosrul5]

Originally Posted by newyorkguy

The plan is so simple, editorialists have called the logic to implementing it "overwhelming,' but it just doesn't pick up support. Sadly, that is being demonstrated in this thread. People find all sorts of reasons to object to this, and most of those reasons are based on a misunderstanding of what the plan is all about.

"To account for that missing 55% of reported income, taxpayers with more than $25,000 in business income should be required to report on their tax returns the bank accounts in which their income is deposited. "

Its simple, yes. And I think we should do it. But I'm highly skeptical that it would do much more than put a dent in the problem. Really large businesses are using clever tricks and loopholes to get out of taxes, they generally don't misreport income. They make it seem as though it was more expensive to do business than reality* Smaller businesses will just not deposit cash. Or they might send a portion of income to an account they didn't report, or their brother in laws account etc. If someones willing to cheat before, they'll still be willing to cheat.

The big guys just bribe congress to let them cheat... ie https://fortune.com/2018/01/18/apple...n-taxes-trump/

[Bob001]

Originally Posted by lobosrul5

"To account for that missing 55% of reported income, taxpayers with more than $25,000 in business income should be required to report on their tax returns the bank accounts in which their income is deposited. "

Its simple, yes. And I think we should do it. But I'm highly skeptical that it would do much more than put a dent in the problem. Really large businesses are using clever tricks and loopholes to get out of taxes, they generally don't misreport income. They make it seem as though it was more expensive to do business than reality* Smaller businesses will just not deposit cash. Or they might send a portion of income to an account they didn't report, or their brother in laws account etc. If someones willing to cheat before, they'll still be willing to cheat.
....

Obviously this won't fix all the problems with the tax code, or eliminate loopholes. The idea is that it becomes much harder to hide income and holdings, and somebody who is presumably one of the world's leading experts says it could bring in $160+ billion a year, some of which could be spent on upgrading IRS systems so they can spend more time doing things like chasing offshore accounts.
https://www.huffpost.com/entry/riche...b6531eed058c98

[newyorkguy]

The Huffington Post article Bob001 linked clarifies some points. The plan being discussed is for individual income accounts, not businesses or corporations. This is about households failing to report all their income, not a really large business inflating their expense deductions.

Quote:

The top 1% of the highest-earning American households are hiding 21% of their income from the Internal Revenue Service, costing the nation some $175 billion a year in revenue, according to the latest estimation on the cost of tax evasion. That 1% accounts for more than a third of all unpaid taxes, concluded the study released [last] month by the Bureau of Economic Research, which included economists from the IRS and several universities.Huff Post link

The argument was made, 'everyone cheats.' For W-2 filers under-reporting income is obviously a lot harder and the top 1% of earners cheat the most a study found.

Quote:

The percentage of income tax evasion generally increases with the income category, the study found. Taxpayers in the bottom half of income categories evade taxes on around 7% of their income. Taxpayers in the top fifth evade taxes on 10% of their income, with the richest 5% avoiding taxes on at least 20% of income. The average annual income of the top 1% of earners is approximately $1.7 million. They collect some 20% of the money earned annually in the nation, according to the Pew Research Center.

The fact is, while the number of people with incomes over one million dollars per year has zoomed up in recent years, audits for people earning over one million have declined by 80% since 2012. Much of the reason for that is Republican-led efforts to cut the IRS's budget under the guise of 'streamlining' government.

So many people read something like this and they're ho-hum. The same people see video of some protester throwing a rock through the window of a CVS and they become outraged.

[Leftus]

Originally Posted by Bob001

I probably don't. But I'll bet the former IRS Commissioner does. And he thinks this would reduce fraud, and make it easier to identify when it happens.

https://www.bloomberg.com/opinion/ar...th-irs-reforms

How much in the weeds knowledge do you think he has? Who do you think his knowledge came from? How many commissioners have you actually talked to?

There is a difference between high level ideas and the low level details. He doesn't have to implement those ideas. I do. But I don't get to write opinion articles in Bloomberg, so I guess that doesn't count.

[Leftus]

Originally Posted by newyorkguy

The fact is, while the number of people with incomes over one million dollars per year has zoomed up in recent years, audits for people earning over one million have declined by 80% since 2012. Much of the reason for that is Republican-led efforts to cut the IRS's budget under the guise of 'streamlining' government.

The cuts were part of punishment for a conference with some questionable videos in, I want to say Anaheim, made by some senior officials in the Small Business Self Employed division. I would agree that the meeting was largely wasteful, but the restrictions were way too much. Then there was the misbehavior in Tax Exempt, again at the more senior levels, that did nobody any favors.

The effects were that training was cut, travel was impossible, and hiring was unheard of. Certain groups, mostly phone assistors jobs, went unfilled and customer service levels dropped. Some of that has recovered, but it takes time to build up the staff to do the full audits, so the selection levels for everyone has dropped. The easy ones, like EITC and AUR, which are all mostly automated correspondence examinations, went forward, with less loss than the more complicated exam processes.

[ahhell]

I don't think this should surprise anyone. The rich have more to hide and more resources to hide it. They also have more incentive on account of paying a higher percentage.

The question is really just, how to make it harder for them to do. I'd also be curious as to how much of it is tax avoision rather than avoidance.

[lobosrul5]

Originally Posted by Bob001

Obviously this won't fix all the problems with the tax code, or eliminate loopholes. The idea is that it becomes much harder to hide income and holdings, and somebody who is presumably one of the world's leading experts says it could bring in $160+ billion a year, some of which could be spent on upgrading IRS systems so they can spend more time doing things like chasing offshore accounts.
https://www.huffpost.com/entry/riche...b6531eed058c98

I was really only responding to the report all business bank accounts part. Upgrading software is a no-brainer.

[newyorkguy]

This issue seems to have wide support (except within the Republican Party). It's not just Charles Rossotti. Cuts in the IRS' budget apparently began in 2010 and have continued. Below is a quote from the Center on Budget and Policy Priorities from 2017.

Quote:

GOP tax plans call for preferential treatment of pass-through business income that would invite massive tax avoidance by wealthy taxpayers, costing hundreds of billions of dollars over the next decade, according to the Tax Policy Center (TPC). An under-resourced IRS would be poorly positioned to enforce the new statutes and regulations that would accompany a tax overhaul. The combination of increased avoidance opportunities and weakened IRS enforcement capacity would further reduce revenues and undermine the integrity of the tax system. CBPP link

An analogy would be highways where people exceed the speed limit by a goodly margin. If drivers almost never see police they barrel along. If they frequently see police -- and occasionally see a driver being pulled over -- the average speed drops. Same idea here. Increase the chances someone under-reporting their income may get caught, compliance increases. Personally, I keep thinking of what I heard Bernie Sanders say. If you are a wage earner who gets a W-2, your tax is deducted before you even get your paycheck. The owner you work for is on the honor system. And they probably cheat.

[Dr. Keith]

There is a huge gap between "W-2 earner" and "publicly traded company with outside auditors" and in that gap there is a lot of money flowing.

While it is never easy or cheap to implement new processes, it seems that restoring funding to the IRS is already needed and adding funding to develop a new process as outlined would likely be a good investment for the country.

Likewise, the incentives to go after the poor rather than the rich are perverse. I hope they are addressed.

[newyorkguy]

Robert Reich was Secretary of Labor under Bill Clinton. I remember him well, he was a regular on the MacNeill-Lehrer Report on PBS. (I just realized -Man, do I miss those days. )

Reich tweeted:

[TragicMonkey]

Now I'm just a simple country hyperchicken from a backwoods asteroid, but it seems to me that if this here block-chain thing has been invented and somehow tracks itself and all its transactions, and we have here all these fancy computers, and most all money is now actually being exchanged and moved on computers, then it couldn't be that hard to just have every digital dollar track itself and tell the IRS where it is now and where it came from last. ShadyCo, Inc may say "we only made $300 last year" but then up from their accounts pipes up three million individual dollars a-saying "here we are! We arrived in ShadyCo account #491202-1249 on 5/13/2020 from the following sources". I don't know how difficult such a thing would be to implement, but I reckon that it can't be impossible and may well be inevitable, and when it does happen it's going to be a heck of a lot harder to get away with monetary shenanigoats.

[Bob001]

Another perspective on wealth inequality, from a formerly rich guy:

Quote:

We are drifting toward an oligarchy or what we could also describe as a "hereditary aristocracy of wealth". We could also describe that group as consisting of "wealth dynasties." In 20 years, the sons and daughters of today's billionaires will be calling the shots, running the economy, dominating politics, blocking change that everyone else wants and even using their philanthropy as an extension of their power and influence.
....
The inequality will be even more entrenched than it is today. It will be harder to dig out of the rut if you will. We'll have many more Donald Trumps running for office. The social safety net will be even more dismantled. There will be more political and social polarization. America may even be controlled by autocratic, totalitarian institutions. If these trends continue here in the United States, the country could look more like Brazil, a country with a very weak state, a powerful plutocratic governing class, a very small and precarious middle class and lots of desperate people. That is the dystopian outcome that could await America in 20 years.

https://www.salon.com/2021/04/13/upp...e-more-trumps/
https://bookshop.org/books/the-wealt.../9781509543496

[Leftus]

Originally Posted by Dr. Keith

There is a huge gap between "W-2 earner" and "publicly traded company with outside auditors" and in that gap there is a lot of money flowing.

While it is never easy or cheap to implement new processes, it seems that restoring funding to the IRS is already needed and adding funding to develop a new process as outlined would likely be a good investment for the country.

Likewise, the incentives to go after the poor rather than the rich are perverse. I hope they are addressed.

Well, the Commissioner was just in front of a Senate panel about the tax gap.

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Subjects were: resources, reporting, and crypto.

Even if funding were restored to a proper level, it would still take years for people to skill up and become effective in their roles. It's 2.5 hours so plan accordingly.