Sometimes a view of governmental reality is so twisted and Kafkaesque that you see the same story in multiple years and even then, it’s hard to believe. In the case of more poor people than rich people getting audited by the Internal Revenue Service, it’s happened before and is happening once again, and it becomes an argument for why most people should want more IRS agents, not fewer.
A few years ago, a ProPublica analysis found that someone making $20,000 a year was far more likely to be audited than a person making $400,000. A big reason why: There were reportedly many mistakes made in claiming refundable tax credits like the Earned Income Tax Credit (EITC), American Opportunity Tax Credit (AOTC, credit for educational expenses of a child’s first four years of college), or Additional Child Tax Credit (ACTC, a program that offered a refundable credit under some circ*mstances but was cut from 2018 to 2025 by the 2017 tax cut).
The IRS has estimated that more than 25% of EITC payments in the government's 2018 fiscal year (which ended on Sept. 30, 2018) were improper, meaning that people technically weren't eligible but got the credit anyway. Almost a third of ACTC payments in tax years 2009 through 2011 "were likely improper." More than 31% of AOTC payments in 2012 were also likely improper.
Put differently, people who made little income and tried to use tax credit programs designed for people like them but that were complex and so easy to make mistake on. (When reporting some stories on federal taxes, I’ve heard from multiple tax professionals who specifically mentioned the EITC as being challenging to fill out correctly. It’s also a tax credit where many people who are most in need of it don’t realize that they qualify.)
People making $20,000 a year or less don’t have the resources to spend on savvy tax pros who can make sure they don’t make mistakes. Or on accountants and lawyers who can defend them in tax court.
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The total improper payments do add up. For EITC in 2018, the estimation is $18.4 billion. The improper ACTC payments were $8.7 billion over the three years examined, while the AOTC payments came to $5.3 billion in 2012. So, understandably there's attention being paid. However, you’d think that the true attention would be to make such programs easily understood and then have computers paying attention to those parts to recognize mistakes before sending money out.
Guess what? Last year, the IRS once again audited few millionaires and instead targeted many more low-income families, according to Syracuse University’s Transactional Records Access Clearinghouse (TRAC), which is a data gathering, data research and data distribution organization.
One of the areas the group looks at is tax data. In 2020, out of every 1,000 tax returns by millionaires, 2.0 were audited. For every 1,000 low-income wage earner tax returns, in which the filers qualified for the anti-poverty ETIC, 7.9 were audited.
In 2021, the odds of millionaires being audited were 2.6 of each 1,000 returns. For low-income wage earners, it was 13.0 out of a 1,000. Last year, the number of millionaires’ returns out of a 1,000 being audited were down to 2.3, while for the low-income wage earners, it stood at 12.7. Once again, it was the anti-poverty EITC that tripped people up.
As the report said, “this group of taxpayers have historically been targeted not because they account for the most tax under-reporting, but because they are easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.”
Kafka, meet Joseph Heller for one of the more insidious and twisted examples of a Catch-22 you can imagine.
This situation becomes even worse with those correspondence audits. Rather than having face-to-face audits, the IRS conducts them through the mail. This is a way of dealing with the chronic understaffing the IRS has faced. But as a National Taxpayer Advocate report in 2021 noted: “Lower income taxpayers are audited primarily through the mail, are not assigned a single point of contact, and have a hard time reaching the IRS. The IRS often closes its audits without any contact from the taxpayer. This creates additional downstream consequences for these taxpayers and the IRS.”
More than half of the IRS individual audits in 2019 — 53% — were completed on lower-income people, and 92% of those were done by correspondence. Only about half the people who called about their audits got answers.
This is an example of why people should welcome more IRS agents, so the balance of audits might swing to those with the large incomes and more ways of not minimizing but avoiding taxes. While $18.4 billion of tax credits — which may or may not be incorrect because the people charged often can’t get answers or reach anyone about it — is a lot of money, it’s nothing compares to the $1 trillion that the IRS says likely goes without payment every year, as Reuters reported in 2021. In fact, that $18.4 billion isn’t even 2% of the total.
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More generally, according to the same report, “IRS collection policies and procedures prevent low-income taxpayers from receiving relief Congress intended and from accessing relief the IRS can provide.” According to the report — which is, after all, a product of the IRS itself — there are millions of low-income taxpayers the IRS doesn’t classify as such, doesn’t refund thousands of payment installment agreement user fees they’re supposed to, and doesn’t have procedures that would allow low-income taxpayers “to easily request a collection pause or avert a refund offset.”
The entire system operates to put the most pressure on the people who can least bear up and afford it. But that does happen to keep efforts directed away from millionaires, who tend to have more resources to fight claims and who seem to have the ear of government far more than those who can’t contribute much to reelection campaign coffers.
