Taxes Blog

Finance Blogs » Taxes Blog » IRS ‘rich auditors’ under fire

IRS ‘rich auditors’ under fire

By Kay Bell ·
Thursday, May 19, 2011
Posted: 1 pm ET

Is the Internal Revenue Service spending too much of its time and our tax money tracking down wealthy tax cheats?

That's the charge from one watchdog group.

Transactional Records Access Clearinghouse, or TRAC, a data gathering, research and distribution organization at Syracuse University, contends that the IRS's Global High Wealth Industry group is not doing its job.

The special audit group was created in 2009 to, according to the IRS, "centralize and focus the IRS compliance expertise" on "high wealth individuals and their related entities."

But TRAC says its examination of records it obtained via the Freedom of Information Act show that the IRS office targeting the suspected rich tax evaders has only managed to audit a handful of tax returns in its first 18 months. Specifically, two returns in fiscal year 2010 and 11 during the first six months of fiscal 2011.

By comparison, says TRAC, all of the groups located in the IRS's Large Business and International Division audited 42,835 returns in fiscal 2010 and by the end of March had audited 29,688 returns during this current fiscal year.

To give the IRS the benefit of the doubt, the Global High Wealth Industry group is relatively new. It takes a while for any new office to get up to speed.

Plus, rich folks have lots of smart tax advisers who employ sophisticated tax techniques to help their clients pay as little as possible. Untangling suspected tax fraud in these convoluted cases takes time.

Still, if the IRS audit group was getting a report card it would at best be an incomplete and probably a D-minus if you're an easy grader. TRAC and other critics of the group's performance say it should get an F.

I'm willing to give the audit-the-wealthy crew through the end of the 2011 fiscal year.

We also have to keep in mind that there are two categories of figures to consider when it comes to taxes: actual number of returns audited and the dollars that the examinations produced.

TRAC didn't address the dollar figures in its report. Personally, I'm curious as to how much extra tax revenue these limited audits brought to the U.S. Treasury.

Sure, 13 audits aren't many, but if those 13 audits each discovered six-figure tax cheating, well …

To clear things up, the IRS should give all of us a bit more info about this special tax examination group and how it's doing. Remember, TRAC had to file formal paperwork to get the bit of data that it used for its analysis.

Then we all can better determine whether, in this time of big budget deficits, a program that targets wealthy taxpayers for audit deserves to be cut some slack for a bit longer.

Make sure you don't miss out on any tax news and tips. Subscribe to Bankrate's free Weekly Tax Tip newsletter.

You also can follow me on Twitter at @taxtweet.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
June 18, 2011 at 8:44 am

It seems the author partially "excuses" the pitiful record of the high-wealth group on the basis of their having "smart tax advisors who employ sophisticated tax techniques". Yet the business group manages to complete an order of magnitude more audits.

Is the author suggesting that businesses don't also have "smart tax advisors who employ sophisticated tax techniques"?? Of course they do, so this defense of the high-wealth group - if that's what it is intended to be - simply falls flat.

June 17, 2011 at 11:37 pm

Sending people like juan to Cuba or North Korea would solve all of our problems

June 17, 2011 at 7:32 pm

The IRS is auditing businesses like crazy and especially 2007 when most businesses made a profit. Many people being auditied are being asked for proof their business deductions are for business purposes under 26 USC 160. The IRS does not however ask them to prove their profits came from business purposes. There are several, and I mean many, IRS agents who are in jail and have recently gone to trial, Like Sherry Jackson, for showing the income tax is illegal. For one thing the 16th amendment wasn't ratified. Kentucky voted against it and Ohio wasn't made a state until 1952 by congressional action as it hadn't entered the union because they argued about it and disbanded before it became a state. The 16th amendment was needed because the income tax isn't an apportioned tax and a similar income tax was struck down by the 1895 US Supreme Court due to lacking apportionment among the states. Moreover, the Brushaber decision in 1916 by the US Supreme Court was against a corporation for the 1909 corporation income tax and the decision said that the executive branch cannot lay and collect taxes (in the last paragraph of that decision) because that power is specifically given to the congress. All bills for raising revenue must originate in the house of representatives ( the people's reps - the Senate was to be the reps for the state governments which was changed by the 17th amendment).
As it has been said and seen, power and money corrupt.

June 16, 2011 at 11:58 am

Eighty-percent tax rate for the rich would solve many of the nation's problems.

June 16, 2011 at 6:25 am

The IRS needs to be held to the same standards of conduct as private collection agencies. The few people I've known that had worked for the agency left for moral reasons. That says a lot to me.

June 15, 2011 at 4:34 pm

What a waste of energy. Grown men chasing a puck! Give me a break
and let's get realistic. This isn't history, it's just a emotional hockey game. There are more important things in life!!

June 12, 2011 at 3:47 am

The IRS is an evil, terrorist organization that gets every penny by the threat of violence or destruction of individuals.

June 09, 2011 at 5:20 pm

After 30 years as a CPA I can assure you the IRS is generally inept.

They swallow camels and strain at gnats.

Dave C
June 02, 2011 at 8:51 pm

Calicut, I think the point was, why is the government targeting people for audit just because they have money. I saw one story where an auditor picked a target for audit ecause he pulled up to a traffic light next to him in a Ferrari.
I adopted special needs kids and took a tax credit. Now myself, and very large numbers of other adoptive parents are being audited because we took the credit. I filed my taxes in February and I'm still waiting for a determination, even though I included all the necessary documentation with my return. Is the IRS performing audits and delaying refunds just to manage cash flow? What's up?

May 28, 2011 at 5:46 pm

I had to read parts of this article twice to see if I accurately understood what the author was trying to say about TRAC and the IRS. In the first sentence the author states: "Is the Internal Revenue Service spending too much of its time and our tax money tracking down wealthy tax cheats?" This sentence seemed to imply that the IRS should QUIT: "spending too much of its time and our tax money tracking down wealthy tax cheats?" In other words, the IRS should lay off pursuing wealthy tax cheats. However, after closely reading the article, I see that the author purports to convey the charges made by a watchdog group "TRAC", which charges are the exact opposite of the idea conveyed in the first sentence and other portions of the article conveying the author's impressions, i.e., the IRS should be doing MORE to catch "wealthy tax cheats".

The author exposes his inaccurate characterization of TRAC's efforts, when he states: "Then we all can better determine whether, in this time of big budget deficits, a program that targets wealthy taxpayers for audit deserves to be cut some slack for a bit longer." However, TRAC is not arguing that the IRS should be cut some slack for its obviously weak efforts in going after "wealthy tax cheats". Rather, contrary to the author's assertions, TRAC is arguing that the IRS should engage in a greater effort in going after "wealthy tax cheats".

I engaged in this analysis because I find that conservative individuals and organizations too often mis-characterize the efforts of "good government" groups such as TRAC. And, I believe they do this to make such groups look bad, when in reality their efforts benefit us all. There is no doubt that forcing "wealthy tax cheats" to pay their statutorily mandated share of taxes would bring in quite a bit of revenue, which the federal government certainly needs at this point in time.