ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IRS COMMISSIONER PUSHES BACK ON GAO REPORT SHOWING THE IRS AUDITS THE LITTLE GUY MORE
By Robert S. Schriebman
IRS Commissioner Charles Rettig took exception to the latest GAO report showing that the IRS audits the little guy more than the big guy. The Commissioner addressed the NYU Tax Controversary Forum on June 23rd. He accused the GAO of skewing its calculations. I discussed the GAO Report in Article number 655. Let’s look at the GAO Report first, and the Commissioner’s rebuttal thereafter.
The GAO Report
On May 17, 2022, a hearing was held before the Subcommittee on Oversight, Committee on Ways and Means, House of Representatives. Speaking before the Subcommittee was James R. McTigue, Jr., IRS Director of Strategic Issues. Mr. McTigue’s testimony was published in a GAO Report, GAO-22-106032 (May 18, 2022).
The testimony covered audit rates between 2010 to 2019 and the collection of taxes as a result of audits. The audit rates do show that lower-income taxpayers are audited more frequently than higher-income taxpayers. The Report also stated that it is one thing to audit and assess, but quite another to collect on those assessed taxes.
Audit Rates According to the GAO Report
From tax years 2010 to 2019, audit rates of individual tax returns decreased. On average, individual tax returns were audited over three times more often for tax year 2010 than for tax year 2019. Audit rates for taxpayers with incomes of $200,000 and above decreased the most, largely because higher income audits tend to be more complicated and require more audit hours. Although audit rates decreased the most for higher-income taxpayers between 2010 to 2019, the IRS continued to audit these taxpayers at higher rates than lower-income taxpayers. At least this is the official statement by the IRS. However, the statistics prove just the opposite. The fact remains that the IRS audits the little guy more than the big guy.
It’s all relative. Small taxpayers generate small change while big taxpayers generate big bucks even though they are audited less than the little guy. The GAO Report stated that the average dollar collected for audits of $25,000 or less $5,169. Audits for taxpayers reporting $200,000 or more average $18,263 per audit.
Another reason why large-income taxpayers are audited less frequently is due to the fact that they can afford to fight the IRS and to tie them up in court. The IRS manpower is at its lowest point in decades. They are fewer auditors, and the government is not willing to invest the manpower to challenge the big guy.
The Commissioner’s Rebuttal
Commissioner Rettig told those attending the NYU Forum that the average audit gets picked up especially for high-wealth taxpayers at least 16 months after the return has been filed. Therefore, any statistics relative to the 2021 or 2020 filing season set forth in the GAO Report were premature. The Commissioner then discussed audit rates for high income taxpayers. He said that for those who make more than $10 million the audit rate “runs right around 7% or 8%. And of this year, it’s at 8.7%.” For taxpayers making between $5 to $10 million the rate is about 4.2%. For taxpayers making between $1 to $5 million the rate is about 2.2%.
It was clear that the Commissioner did not like the results of the GAO Reprt. He said, “This is damaging to tax administration in this country when people say IRS audits more lower-income people than higher-income people.”
The Commissioner did not discuss the audit rate for taxpayers reporting $25,000 or less of income. The GAO reported that the audit rate was as high as 40%. Only 17% of taxpayers with incomes of $200,000 or greater face any type of an audit. The Commissioner may have wanted to avoid responding to the GAO when it comes to super high audit rates for the little guy. Afterall, he is the Commissioner and no one in the NYU audience wanted to confront him.
While I believe and respect the Commissioner’s rebuttal explaining higher rates for super high- income taxpayers, one must understand that these super rich taxpayers represent only a very small percentage of the taxpaying public. Because of the relatively small percentage of these taxpayers, audits by the IRS will show a higher relative percentage than the same number of audits for lower-income taxpayers because the field is substantially larger.
The GAO Report was not something that was slapped together constituting sloppy work. This report was presented to the elite Senate Finance Committee, and I can tell you from personal experience, having personally appeared twice before this Committee, one does his homework before making a presentation. Therefore, I put my lot in with those who prepared the GAO Report which proves by statistical analysis that the IRS picks on the little guy more than the super-rich.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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