If you live in the U.S., your federal taxes are due today, offering many grim reminders. Here's one of them: While many of the largest and most profitable U.S. companies pay little or even zero income taxes and the wealthy have the means to evade paying their share, the federal government is continuing its war on the poor. One example of failure within U.S. federal policy is the ongoing practice of the IRS (Internal Revenue Service) disproportionately auditing poorer U.S. households.
Hence there’s an opportunity for companies within and linked to the financial sector to make good on any of their social impact agendas, notably as it’s currently Financial Literacy Month. For many families grossing $25,000 a year or less, how can the latest no-cost fintech apps or campaigns to improve how citizens approach personal finance do any good if there’s the specter of an IRS audit on the horizon? As more than half of Americans are estimated to have less than three months of savings to cover an emergency, an envelope in the mail from the IRS could be as frightening as an emergency room visit or the sudden need for a car repair. Bottom line: The less a person makes, the less likely he or she has an accountant on speed dial.
Going back to the threat of an IRS audit for working families: Current evidence suggests that the IRS has no plans to curb such plans any time soon. In fact, the Transactional Records Access Clearinghouse (TRAC) at Syracuse University found that audits of wage-earners making $25,000 or less has increased by more than 25 percent so far this year when compared to the 2021 tax season.
“If IRS continues at this same pace for the rest of this fiscal year, audit rates would inch up to 13.5 per 1000 returns — slightly higher than the phenomenally high rates that occurred last year when IRS audited the poorest families claiming an anti-poverty earned income tax credit at five times the rate for everyone else,” concluded TRAC’s researchers.
The problem is starting to score the attention of Congress, with Sen. Elizabeth Warren (D-Mass.) and Rep. Judy Chu (D-Calif.) among the leaders calling out both the U.S. Treasury and the IRS for these distorted audit rates.
Much of the problem lies in the feds’ decisions to slash the budget of the IRS over the period of several years, a trend that occurred during both the Barack Obama and Donald Trump administrations. But few observers are noticing as the IRS keeps losing staffers not through mass layoffs, but through attrition.
“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,” Paul Kiel and Jesse Eisinger wrote for ProPublica back in late 2018.
Another problem is the lack of transparency as to how the IRS is conducting its audits now. “While the [Joe] Biden administration’s American Families Plan Tax Compliance Agenda committed to not increasing the rates of audits for those earning less than $400,000 annually, there is no consistent public release of audit data or a plan to release audit data, making it virtually impossible to monitor compliance with this commitment,” Warren and Chu wrote last month.
Years of bad headlines along with how the tax collection agency has been portrayed in popular culture have given the IRS a brand reputation that ranks about as high as the Ford Pinto and New Coke. Nevertheless, it’s clear having a crew of auditors that is smaller now than when Dwight Eisenhower was president — even with the transformation of technology now available at hand — makes no sense. The current head of the IRS, Charles Rettig, told Congress earlier this month that the federal government is losing about $1 trillion in paid taxes a year. But trying to extract that amount from hourly wage workers who are rightfully claiming a federal tax credit is the financial equivalent of getting blood from a stone.
Going back to financial inclusion, the IRS’s continued reign of auditing terror opens a door to financial and professional services companies. Offering support for poor families who get such a nasty-gram from the IRS would not only offer families relief, but also provides an engagement opportunity for companies as they allow their employees to tackle some much-needed community work within the neighborhoods in which they live and work.
Image credit: John Tyson via Unsplash
Leon Kaye has written for 3p since 2010 and become executive editor in 2018. His previous work includes writing for the Guardian as well as other online and print publications. In addition, he's worked in sales executive roles within technology and financial research companies, as well as for a public relations firm, for which he consulted with one of the globe’s leading sustainability initiatives. Currently living in Central California, he’s traveled to 70-plus countries and has lived and worked in South Korea, the United Arab Emirates and Uruguay.
Leon’s an alum of Fresno State, the University of Maryland, Baltimore County and the University of Southern California's Marshall Business School. He enjoys traveling abroad as well as exploring California’s Central Coast and the Sierra Nevadas.