A new research paper shows that the top 1% of American earners may fail to report up to 21% of their income through methods that are difficult to catch in typical audits.
This paper, authored by the Internal Revenue Service and the London School of Economics, is not actually looking at illegal tax reporting. It is looking at the effects of legal income reporting, such as the pass-through business where income passes through an individual’s tax return and is not taxed at the corporate level. Remember, tax avoidance is legal. Tax fraud is not.
So this paper is making it seem like the top earners are not reporting these dollars but they are. They are simply reporting them in a way the IRS wants to challenge. It’s a math war, not a fraud war.
The IRS has been understaffed for audits in recent years. The organization will use this research to argue for more funding so it is easy to see that this is not an unbiased report. The IRS wants to use it to build itself up as an army, for better or for worse, that’s for you to decide. The IRS estimates that for every tax dollar they spend on enforcement, they could earn back between $5 and $7.
The President and Democrats do want to staff up the IRS but Republicans oppose it.