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How the IRS Was Gutted

Old 12-12-18, 04:01 PM
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How the IRS Was Gutted

I know several people who work, or have worked, for the IRS, including one of the my best friends. So between their comments and random snippets in the news now and again, I have been well aware that the IRS budget cuts in recent years have seriously hampered tax enforcement and services, but the numbers are still quite startling:

https://www.propublica.org/article/h...irs-was-gutted

In the summer of 2008, William Pfeil made a startling discovery: Hundreds of foreign companies that operated in the U.S. weren’t paying U.S. taxes, and his employer, the Internal Revenue Service, had no idea. Under U.S. law, companies that do business in the Gulf of Mexico owe the American government a piece of what they make drilling for oil there or helping those that do. But the vast majority of the foreign companies weren’t paying anything, and taxpaying American companies were upset, arguing that it unfairly allowed the foreign rivals to underbid for contracts.

Pfeil and the IRS started pursuing the non-U.S. entities. Ultimately, he figures he brought in more than $50 million in previously unpaid taxes over the course of about five years. It was an example of how the tax-collecting agency is supposed to work.

But then Congress began regularly reducing the IRS budget. After 43 years with the agency, Pfeil — who had hoped to reach his 50th anniversary — was angry about the “steady decrease in budget and resources” the agency had seen. He retired in 2013 at 68.

After Pfeil left, he heard that his program was being shut down. “I don’t blame the IRS,” Pfeil said. “I blame the Congress for not giving us the budget to do the job.”

Had the billions in budget reductions occurred all at once, with tens of thousands of auditors, collectors and customer service representatives streaming out of government buildings in a single day, the collapse of the IRS might have gotten more attention. But there have been no mass layoffs or dramatic announcements. Instead, it’s taken eight years to bring the agency that funds the government this low. Over time, the IRS has slowly transformed, one employee departure at a time.

The result is a bureaucracy on life support and tens of billions in lost government revenue. ProPublica estimates a toll of at least $18 billion every year, but the true cost could easily run tens of billions of dollars higher.

The cuts are depleting the staff members who help ensure that taxpayers pay what they owe. As of last year, the IRS had 9,510 auditors. That’s down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size. And the IRS is still shrinking. Almost a third of its remaining employees will be eligible to retire in the next year, and with morale plummeting, many of them will.


The IRS conducted 675,000 fewer audits in 2017 than it did in 2010, a drop in the audit rate of 42 percent. But even those stark numbers don’t tell the whole story, say current and former IRS employees: Auditors are stretched thin, and they’re often forced to limit their investigations and move on to the next audit as quickly as they can.

Without enough staff, the IRS has slashed even basic functions. It has drastically pulled back from pursuing people who don’t bother filing their tax returns. New investigations of “nonfilers,” as they’re called, dropped from 2.4 million in 2011 to 362,000 last year. According to the inspector general for the IRS, the reduction results in at least $3 billion in lost revenue each year.

Meanwhile, collections from people who do file but don’t pay have plummeted. Tax obligations expire after 10 years if the IRS doesn’t pursue them. Such expirations were relatively infrequent before the budget cuts began. In 2010, $482 million in tax debts lapsed. By 2017, according to internal IRS collection reports, that figure had risen to $8.3 billion, 17 times as much as in 2010. The IRS’ ability to investigate criminals has atrophied as well.:

Corporations and the wealthy are the biggest beneficiaries of the IRS’ decay. Most Americans’ interaction with the IRS is largely automated. But it takes specialized, well-trained personnel to audit a business or a billionaire or to unravel a tax scheme — and those employees are leaving in droves and taking their expertise with them. For the country’s largest corporations, the danger of being hit with a billion-dollar tax bill has greatly diminished. For the rich, who research shows evade taxes the most, the IRS has become less and less of a force to be feared.

The story has been different for poor taxpayers. The IRS oversees one of the government’s largest anti-poverty programs, the earned income tax credit, which provides cash to the working poor. Under continued pressure from Republicans, the IRS has long made a priority of auditing people who receive that money, and as the IRS has shrunk, those audits have consumed even more resources, accounting for 36 percent of audits last year. The credit’s recipients — whose annual income is typically less than $20,000 — are now examined at rates similar to those who make $500,000 to $1 million a year. Only people with incomes above $1 million are examined much more frequently.

We submitted a detailed list of questions to the IRS and asked about the budget cuts’ effects on the agency’s enforcement efforts. The agency replied with a brief statement. “The IRS has substantial resources to identify and audit noncompliant taxpayers and continues to deter those attempting to evade their legal obligations,” it said.

In ProPublica’s interviews with dozens of tax professionals and more than 50 former and current IRS employees — part of an ongoing series on the state of tax enforcement — many agency veterans wondered whether the damage of the past several years will ever be undone. And they had a greater worry: that the American public will inevitably realize how weak the IRS has become.

The effects of an explosion in tax cheating would be dire. The nation’s already soaring budget deficit would surge by hundreds of billions of dollars more, pushing it well past $1 trillion. Commissioners of the IRS, starting with President George W. Bush’s appointee, Douglas Shulman, have warned Congress about a crisis like this since the budget cuts began, in 2011. But after eight years, Republican lawmakers, who are chiefly responsible for the reductions, show no signs that they think the danger is urgent. By the time the danger becomes indisputable, immense harm will already have been done.

“In the last few years, it was really frustrating,” said Pam Reicks, a former manager at the IRS who, until she retired at the end of last year, oversaw a program to audit wealthy taxpayers with undeclared offshore bank accounts. “It’s like in the fall when you bob for apples,” she told us. “You’ve got a tub of apples and can’t use your hands to grab them. You can see all this abuse and fraud, and people not paying their taxes, but can’t use your hands to get it.”
The article then delves into the history of all this and, while both parties have had some complicity, I don't think I have to tell anyone which of the two major parties has been the driving force behind the vast majority of this. There also lots of pretty graphs in the article worth looking at.

IRS employees in key audit and enforcement positions (revenue agents, tax examiners, etc.) effectively turn a profit for the country and this is hardly a secret. Obviously, there is a point of diminishing returns here but we are nowhere near it now and I doubt we were back when the budget cuts started either. It was a foregone conclusion that budget cuts to the IRS were going to disproportionately impact enforcement and auditing rather than service, and when the GOP Congress finally realized that they had gone too far in 2015 and gave the IRS a small budget bump, those funds were earmarked for seasonal service workers only. So you have budget cuts that were sure to largely impact enforcement and political pressure to focus a disproportionate amount of the remaining enforcement effort on EITC/low-income filers, I think the motives here are pretty obvious.
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Old 12-12-18, 04:05 PM
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Re: How the IRS Was Gutted

So I don't have to worry about filing tax returns anymore? Cool!
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Old 12-12-18, 11:59 PM
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Re: How the IRS Was Gutted

crap I haven't noticed. I made a simple mistake in my 2016 return and the IRS went batshit crazy going over all my returns, funny thing was I owed them money based on a mistake they found in 2016, but then they owned me money based on a different mistake they found in 2015 about a week later

stupid fat finger entries of numbers in tax software and I am convinced I a blind, not sure how I didn't see either mistake on that last once over before submitting

but never fear the IRS is here and auditing at full speed

I do know people that just don't file, ever, I always assume they are just losing out on their refund and that is why the IRS NEVER comes after them, but maybe not....
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Old 12-13-18, 06:51 AM
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Re: How the IRS Was Gutted

Make the tax code easier and simplify it as that should have been done by Congress years. Close Loopholes, have less tax rates, etc. The Tax Code is so complex that these businesses (or a good accountant) can do anything to avoid paying the proper amount every year. This is why the IRS is outmatched to really crack down on all of the Corporate Welfare that goes on, and it just leads to more audits.

But these politicans all get their grubby hands on the tax code and they add this deduction and that deduction for their special interests, and you have this novel for a tax code that most people don't understand. The one guy I actually liked who ran for President in 1996 was Steve Forbes who came up with the idea for your taxes being done on a postcard. He had a Flat Tax (which obviously can be debated as maybe you have 2 tax rates for the middle class and rich), along with the Mortgage Interest Deduction and a few other minor deductions that effect everyone. It never went anywhere because the special interests don't want that because the loop holes is how they buy congressman/senators, and it's a vicious cycle.
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Old 12-13-18, 08:44 AM
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Re: How the IRS Was Gutted

Originally Posted by 4KRG View Post
crap I haven't noticed. I made a simple mistake in my 2016 return and the IRS went batshit crazy going over all my returns, funny thing was I owed them money based on a mistake they found in 2016, but then they owned me money based on a different mistake they found in 2015 about a week later

stupid fat finger entries of numbers in tax software and I am convinced I a blind, not sure how I didn't see either mistake on that last once over before submitting

but never fear the IRS is here and auditing at full speed

I do know people that just don't file, ever, I always assume they are just losing out on their refund and that is why the IRS NEVER comes after them, but maybe not....
They actually reviewed your tax return, found a mistake you made which meant you paid too much in taxes, and told you?
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Old 12-13-18, 08:50 AM
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Re: How the IRS Was Gutted

Good luck to anyone trying to understand their tax return for 2018. I've been doing taxes for over 15 years now and I can't even begin to decipher the new forms. Progress at work.

I've been beating this IRS drum for a while, but no one really seems to care. I can't think of another industry in which you could create jobs and generate revenue for the government at the same time, without any expenditure, and no politician seems to care enough to take up the cause.
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Old 12-13-18, 10:43 AM
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Re: How the IRS Was Gutted

Originally Posted by fujishig View Post
They actually reviewed your tax return, found a mistake you made which meant you paid too much in taxes, and told you?
Yes

2016 they found I owned them

that must have triggered going over all my returns they legally could
then I got a refund check for over payment from another mistake they found for 2015

all small amounts of money, not even worth wasting time over
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Old 12-13-18, 11:08 AM
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Re: How the IRS Was Gutted

Originally Posted by 4KRG View Post
Yes

2016 they found I owned them

that must have triggered going over all my returns they legally could
then I got a refund check for over payment from another mistake they found for 2015

all small amounts of money, not even worth wasting time over
I've never heard that happen before, that's pretty cool. Of course, I'm sure you owed them interest on the amount you owed and they didn't pay any interest on the amount they kept, so they still made out.
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Old 12-13-18, 11:22 AM
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Re: How the IRS Was Gutted

People demonize the IRS, but they are VERY forgiving on penalties and interest if you're just upfront with them.

Countless times I have written a letter detailing reasons for late payments, (not for myself, but bankruptcy cases I have worked on), and they have been very easy to deal with.
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Old 12-13-18, 11:44 AM
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Re: How the IRS Was Gutted

I got a letter a few months ago saying we owed like 3K, my CPA checked and said nope, you might owe 200, so we sent a letter back, and haven't heard from them.
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Old 12-13-18, 11:57 AM
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Re: How the IRS Was Gutted

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Old 12-13-18, 01:32 PM
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Re: How the IRS Was Gutted

Gutting the IRS's main corporate auditing force is by design by both Republican and Democrats (they have a lot more in common than they don't). In addition, the article pretty much says what I've been saying/believing for a while, which is that large corporations...really don't pay their fair share when you wash it all out. It is the typical and average American who pays most of the taxes. Sure, politicians could show me graphs and whatever that demonstrates how much corporations pay, but I believe it's all horseshit. It is much much easier to find out if an individual payed taxes for a single than a large corporation. You'd be swimming in paperwork, trying to find out just exactly what was paid out, and even then, the tax pay out could be tied to the upcoming year, which then would imply you'd need to check the previous year to make sure to find out for the current year of interest, etc, etc.

It's unfortunate that the EIC is used fraudulently on the one hand and getting more personnel to investigate those people, while corporations are getting away hundreds of times more cash avoidance per EIC incident. Certainly a disproportionate allocation of personnel going on.
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Old 12-13-18, 01:40 PM
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Re: How the IRS Was Gutted

And the rich get richer.

The Republican Party Exists to Protect Millionaires and Billionaires
A new report from The Atlantic and ProPublica reveals how GOP efforts to slash
the IRS budget are depriving the federal government of badly-needed revenue.

https://www.gq.com/story/republican-...Q0-nls-bOqV1Bg
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Old 12-13-18, 01:43 PM
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Re: How the IRS Was Gutted

So on the one hand we have the GOP rewarding corporations for not paying taxes and in the Democrat camp, we have them targeting religious groups just because they don't like them.

win/win.
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Old 12-13-18, 02:46 PM
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Re: How the IRS Was Gutted

Originally Posted by DVD Polizei View Post
So on the one hand we have the GOP rewarding corporations for not paying taxes and in the Democrat camp, we have them targeting religious groups just because they don't like them.

win/win.
Did we settle on this being the correct one?

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Old 12-15-18, 03:56 PM
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Re: How the IRS Was Gutted

Originally Posted by cultshock View Post
So I don't have to worry about filing tax returns anymore? Cool!
Only if your income is greater than a million a year.

This has been a Republican goal for decades. "Starve the Beast!" My father talked about it in the 1970s.
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