If you are a low-income taxpayer, you are more likely to be audited by the IRS than a wealthy taxpayer. One of the major reasons being that it’s easier to audit the poor. To audit the wealthy, the IRS may need lawyers and investigators, which they have a scarcity of because of poor funding. On the other hand, auditing recipients of the Earned Income Tax Credit (EITC) is easy.
EITC exists to benefit working people with low to moderate income, but in reality the situation is very different. Truth Out examines:
“‘While the wealthy now have an open invitation to cheat, low-income taxpayers are receiving heightened scrutiny because they can be audited far more easily. All it takes is a letter instead of a team of investigators and lawyers,’ said Sen. Ron Wyden, D-Ore., the ranking member of the Senate Finance Committee.
‘We have two tax systems in this country,’ he said, ‘and nothing illustrates that better than the IRS ignoring wealthy tax cheats while penalizing low-income workers over small mistakes.’
In a statement, IRS spokesman Dean Patterson acknowledged that the sharp decline in audits of the wealthy is due to the agency having lost so many skilled auditors. And he didn’t dispute that pursuing the poor is just easier.
Because EITC audits are largely conducted through the mail by lower-level employees from a central location, they are ‘less burdensome for taxpayers than in-person audits as they mail in their documentation and don’t have to take time out of the workday,’ Patterson said.
‘Correspondence audits are also the most efficient use of IRS’ limited examination resources.’”
When poor taxpayers are audited and their refund is frozen by the IRS, they usually lack the resources to contest the agency. Some find it difficult to understand what the IRS requires them to do. Worse still, those who are audited do not claim the EITC in future returns, or stop filing a tax return. Truth Out shares the story of the Smiths, a low-income couple who lost their precious refund money to the IRS:
“Natassia Smick and her husband were among those unlucky 382,000 households. We wrote about them last year. They live outside Los Angeles and saw their entire refund frozen in February 2018. For a couple who earned about $33,000 in 2017, that $7,300 refund was big money ($2,000 of it stemmed from the EITC). When it didn’t come, Smick said she had to abandon plans for catching up with her credit card debt.
After Smick sent in all her supporting documents, it took until this May to get a final answer from the IRS. Fourteen months after it all started, the IRS said it agreed Smick and her husband were due about $7,000, she said. But the agency disagreed on the remaining $350, because it couldn’t verify her husband’s employment for part of the year. Smick said the IRS was wrong to hold back the $350, but she couldn’t afford to contest it and further delay the $7,000.
‘I’m not going to fight anymore,’ she said. ‘We have already waited too long, and we are not in a financial position to wait another three months to appeal.’”
The result of many of these audits is that taxpayers who are eligible for the EITC are no longer claiming it. This defeats the purpose of having this tax credit in the first place while discouraging low-income taxpayers to file a tax return.