The news has recently been flooded by reports of wealthy Americans paying little to nothing on their federal taxes through the exploitation of tax loopholes. Wealthy Americans have the disposable income available to hire some of the best tax experts available, and those tax experts know the best ways to save their clients millions of dollars. With all of these assets at stake, you would think that the IRS would put the top 10% of earners at the top of the audit list. Strangely, mega-wealthy Americans have traditionally been audited at a lower rate than the average American, and IRS Commissioner Charles Rettig wants to change that with the help of Congress. If you’re concerned about IRS scrutiny, get in touch with Billy at Inside Out Tax Resolution Services today.
Audits By The Numbers
Lower-income Americans have recently come under fire from the IRS if they elected to apply the Earned Income Tax Credit or EITC. This tax credit is meant for low to moderate-income families, but those who elected to take this tax credit have been under immense pressure by IRS audits. According to IRS records, people who claimed the Earned Income Tax Credit accounted for 36% of all 2017 audits, twice the rate of those with incomes between $200,000-500,000.
In 2017, the IRS audited .62% of returns. High-income households, which consist of any household that makes over $200,000, are audited at 4.37%, which is substantially higher than .59% of households making less than $200,000. The auditing rate for higher-income households is substantially higher than most other tax brackets, and Charles Rettig wants to raise that level even more.
Charles Rettig’s Plan
IRS Commissioner Charles Rettig appeared before Congress to talk about his desire to shake up the way audits are done and whom these audits affect. Rettig believes that the IRS should shift gears to audit more high profile filers, with the belief that each audit would, in turn, be more valuable to the IRS as a whole. Rettig is aware of the higher audit rate for lower-income families that claimed the EITC and he attributes that higher rate to the complicated nature of the tax credit.
The EITC gets complicated in the definition of what constitutes a qualifying child. The law has very specific qualifications, including age, residency, and a number of other requirements. The higher audit rate was intended to keep this tax credit on the straight and narrow and to make sure that people didn’t take advantage of this credit, but the increased audit rate has brought about additional stresses and costs to families that can’t afford the legal advice to help them in the first place. Rettig’s plan to increase audits for wealthy taxpayers could lead to less audit stress to lower-income filers, but it means that high-income taxpayers need to be careful with how they file their taxes. Regardless of your tax bracket, if you’re dealing with a tax problem, contact Inside Out Tax Resolution Services today!