Paul L. Caron

Saturday, October 27, 2012

IRS = Income Redistribution Service

Treasury - IRSReal Clear Politics:  IRS: The Small Business Bully:

President Barack Obama and Governor Mitt Romney continue to tussle over tax rates and deductions. Ignored, however, have been questions about tax collection and enforcement — tools presidents use to achieve their economic policy goals. Hit a wall ramming your tax hike or cut through Congress, simply increase or decrease tax enforcement and audits.

Under the Obama Administration, the IRS has placed small and medium-size businesses — the engines of job creation — in its auditing crosshairs.

According to IRS statistics, from 2009 to 2011, the coverage rate (number of audits as a percentage of total returns filed) for corporations with assets between $10 million and $50 million has increased 32%. The coverage rate for corporations with assets between $50 million and $100 million has increased at the same rate. Some businesspeople file individual returns, and those with incomes higher than $1 million have experience a 94% increase in their coverage rate, and a 29% increase in the actual number of exams since 2009. Those with incomes $200,000 and higher have seen a 36% increase in their coverage rate.

So, has ratcheting up audits on small and medium-size businesses produced more revenue bang for the IRS’s buck? Hardly.

Using 2011 IRS data, the Transactional Records Access Clearinghouse (TRAC) at Syracuse University found that audits of a company with assets between $10 and $50 million yielded $702 in recommended additional taxes per hour. For large corporations with assets of $250 million or more, the recommended additional taxes are $9,173 per hour. Yet while the coverage rates of companies with assets between $10 to $50 million are up 32%, rates for companies with assets of $250 million or higher are up just 7.4%.

In short, for every hour the IRS spends auditing a small or medium business, it would have recouped $8,471 more dollars auditing a large corporation. Nevertheless, the IRS continues to aggressively increase audits on small and medium companies over their larger counterparts. ...

Tax collections and enforcement can be just as redistributive as tax rates. As the numbers show, the IRS is increasingly placing job creators under the auditing hatchet while shirking oversight of the billions in new tax credits flowing to those claiming low-income status.

Put simply, the Internal Revenue Service is morphing into the Internal Redistribution Service.

IRS News, Tax | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference IRS = Income Redistribution Service:


Yeah, redistribution is kinda supposed to be what taxation is about.

Posted by: Doug Diggler | Oct 27, 2012 7:36:40 PM

Is the administration so economically illiterate that they have no understanding whatsoever of what they are actually doing? Or am I missing some important step in the march to full governmental economic control? Is the IRS just following orders, or are there more agencies than dreamed of that need a complete flushing out? Or are they just desperate for revenue and convinced that a declining economy can yield up ever more?

Tom Sowell and many others have said that the Left doesn't understand where money comes from. I guess I should have taken that more seriously.

Posted by: The Elephant's Child | Oct 28, 2012 2:06:17 PM

Anyone who has owned or advised small businesses knows that they are target rich environments. Owners deduct personal expenses (meals, vacations, cars, furniture, kid's tuition) and manipulate earnings (the amazing year-end disappearing inventory trick, for example).

Posted by: Anonymous | Oct 29, 2012 8:39:10 AM

My company got audited this last year, even though we have an independent audit and our auditors' firm also prepares the tax return. The IRS agent involved seemed dumbfounded that we had an independent audit.

He came in asking for shareholder personal tax returns, even though we are a C corp, not an S corp. (Besides which, he is from the IRS, wouldn't the IRS already have shareholder tax returns, as filed?)

After 2 days of field work, he left with no additional taxes. A big waste of taxpayer money.

Posted by: Loren | Oct 29, 2012 9:11:13 AM

Dear Elephant Child: Three points. It is very difficult to increase audits of large corporations. Large corporations are under constant audit. IRS revenue agents actually have on-site offices at Fortune 500 companies, where they conduct audits for all "open" years, almost all the time. You can increase the INTENSITY of large business audits by assigning more revenue agents to a given large corporate taxpayer. But you can't increase the NUMBER of large business audits substantially. As always, statistics don't lie, but liars do use statistics.

Second point, one that is missed by most conservatives. Money does not come from the private sector. Money is created, disttributed, and regulated by governments. No government = barter system.

Third point, take a closer look at that constant refrain about small business generating more jobs than big business. In absolute terms, large business creates more jobs and better paying jobs.

Posted by: Publius Novus | Oct 29, 2012 10:17:45 AM

This article is so ridiculously misleading, I'm shocked they bothered to put the link to the source data in it. If anyone bothered to look at the actual IRS statistics linked in the article, they would get an entirely different impression.

The article claims that the increase in the audit coverage rate of individuals with incomes over $1 million is evidence of some scheme by the current administration to punish small and medium sized businesses, and then conveniently doesn't reference any of the actual data on pass through returns, which is included in the IRS report.

For your information, audit coverage rates for 1120-S returns increased 0.02% from 0.40% to 0.42%. Audit coverage rates for 1065 returns also increase 0.02% from 0.38% to 0.40%. Really putting the screws to small and medium sized businesses aren't they?

In my opinion, citing percentage changes in numbers that are already percentages is inherently misleading as well. The author could have retained much more credibility, if he had used the absolute numbers, instead of the percentage changes in coverage rates. Of course, that would have invalidated his overall premise.

Posted by: Bert Earp | Oct 31, 2012 2:54:34 PM