IRS Attacks California

      The IRS audits individuals at different rates in different parts of the country.  The State of California is getting increased attention from the IRS.  This is probably because of the increasing tax protest activity in the state.  The IRS is looking harder in California for people who do not file returns and the audit rate is four times higher in California than in the rest of the country.  In New York City, the highest-income district in the United States, the fraud audit rate fell to 208 in 1996 from 628 in 1992.  In Connecticut the suspected fraud audits dropped to 57 from 848.  Meanwhile, back taxes and penalties are increasing for the poor and declining for the rich.  This is because Congress directed the IRS to monitor the tax returns of the working poor more thoroughly in 1995.

      The attack against the working poor was to make sure that people eligible to get earned income credit do not get more than they are supposed to.  Between 1992 and 1996, the average increase in the tax bill that IRS auditors recommended for those making less than $25,000 more than doubled, to almost $5,700 from $2,500, while for those making more than $100,000, it fell 14.5 percent to $19,700 from $23,000.  This year about 170 million Americans will file approximately 120 million tax returns.  About one person in every 150 will be audited. In 1996, for example, the IRS audited approximately a 800,000 tax returns.  The IRS bases about a third of its audits on dif scores which are based on a statistical formula known only to the IRS: taxpayers who deviate the most from the norms are the ones that get an audit.

Check Out These Facts

1. The average family today pays more in taxes than it spends on food, clothing, and shelter combined.

2.  Over the past several decades, a majority of the growth in family income has gone to pay taxes.

3.  The average working Americans work 2 hours and 49 minutes of every eight-hour working day to pay taxes.  Most of that time, 1 hour and 53 minutes, will be spent working to pay federal taxes.

4.  Each year Americans devote 5.4 billion hours complying with the tax code, which is more time than it takes to produce every car, truck, and van made in the U.S.

5.  Americans spend over $200 billion each year on tax lawyers, accountants and other costs associated with tax compliance.

6.  The IRS sends out 8 billion pages of forms and instructions each year, which if laid end to end, would stretch 28 times the circumference of the earth.  Nearly 300,000 trees are cut down each year to produce the paper on which these IRS forms and instructions are printed.

7.  The IRS's tax rules and regulations have increased from less than 200 pages in 1913 to more than 7,000 pages in 1995.

8.  In 1993, taxpayers were overcharged $5 billion in penalties.

9.  The November 1996 issue of Money magazine asked 45 tax professionals to prepare a return for a fictional family.  No two prepares came up with the same tax total and not one preparer calculated what Money believed to be the correct federal income figure.  Fewer than one in four came within $1,000 of that figure.

10. 60 percent of taxpayers hire a professional tax preparer to complete their return when only a third of taxpayers itemize their deductions.

11.  The IRS provided 8.5 billion incorrect or incomplete answers to taxpayers in 1993.

12.  High marginal tax rates combined with multiple taxation of work, savings and investment are a drain on economic growth.  The income level of the U.S. could be 15 to 20 percent higher than today if these biases did not exist.  This translates to lost income of as much as $4,000 to $6,000 for the typical middle class family.  (This data is 10 years old, it is presented here to show you that the situation has gotten much worse and it continues to get worse.  When will it change?)