Paul L. Caron
Dean


Monday, April 8, 2019

The IRS Tried To Take On The Ultrawealthy. It Didn’t Go Well.

ProPublicaProPublica, The IRS Tried to Take on the Ultrawealthy. It Didn’t Go Well.:

Ten years ago, the tax agency formed a special team to unravel the complex tax-lowering strategies of the nation’s wealthiest people. But with big money — and Congress — arrayed against the team, it never had a chance.

In 2009, the IRS ... formed a crack team of specialists to unravel the tax dodges of the ultrawealthy. In an age of widening inequality, with a concentration of wealth not seen since the Gilded Age, the rich were evading taxes through ever more sophisticated maneuvers. The IRS commissioner aimed to stanch the country’s losses with what he proclaimed would be “a game-changing strategy.” In short order, Charles Rettig, then a high-powered tax lawyer and today President Donald Trump’s IRS commissioner, warned that the squad was conducting “the audits from hell.” If Trump were being audited, Rettig wrote during the presidential campaign, this is the elite team that would do it. ...

It can take years for IRS investigators just to understand a transaction and deem it to be a violation. ... Once that happens, the IRS team has to contend with battalions of high-priced lawyers and accountants that often outnumber and outgun even the agency’s elite SWAT team. “We are nowhere near a circumstance where the IRS could launch the types of audits we need to tackle sophisticated taxpayers in a complicated world,” said Steven Rosenthal, who used to represent wealthy taxpayers and is now a senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution.

Because the audits are private — IRS officials can go to prison if they divulge taxpayer information — details of the often epic paper battles between the rich and the tax collectors are sparse, with little in the public record. Attorneys are also loath to talk about their clients’ taxes, and most wealthy people strive to keep their financial affairs under wraps. Such disputes almost always settle out of court. ...

Most people picture IRS officials as all-knowing and fearsome.

But when it comes to understanding how the superwealthy move their money around, IRS auditors historically have been more like high school physics teachers trying to operate the Large Hadron Collider. ...

It’s particularly important to audit the wealthy well, and not simply because that’s where the money is. That’s where the cheating is, too. Studies show that the wealthiest are more likely to avoid paying taxes. The top 0.5 percent in income account for fully a fifth of all the underreported income, according to a 2010 study by the IRS’ Andrew Johns and the University of Michigan’s Joel Slemrod. Adjusted for inflation, that’s more than $50 billion each year in unpaid taxes.

https://taxprof.typepad.com/taxprof_blog/2019/04/the-irs-tried-to-take-on-the-ultrawealthy-it-didnt-go-well.html

IRS News, Tax | Permalink

Comments

This doesn't augur well for the newest proposals to tax the ultra-wealthy, especially for Elizabeth Warren's wealth tax. Prospects are probably a bit better for the more straightforward proposals by Bernie Sanders (on the estate tax) and AOC (for raising the marginal rate on incomes over $10 million).

Posted by: Gerald Scorse | Apr 8, 2019 8:06:24 AM