Last year, for the first time, the poor were more likely than the rich to have their tax returns audited, new Internal Revenue Service data compiled by Syracuse University researchers show.
The IRS audited 1.36 percent of all tax returns filed by people making less than $25,000 last year, compared with 1.15 percent of returns filed by those making $100,000 or more. Since 1988, audit rates for the poor have increased by a third, from 1.03 percent, while falling 90 percent for the wealthiest Americans, from 11.4 percent.The need to audit the highest-income taxpayers is somewhat less today than in 1988, IRS officials say, because more of these people are wage-earners whose pay is fully reported by employers and because Congress has eliminated some of the deductions most likely to be abused.
But there has been no reason to reduce audits of corporations and the self-employed, which fell to record low levels last year because Congress did not authorize funds to keep up with the increased number of such taxpayers. These taxpayers received less scrutiny even though the General Accounting Office, the investigative arm of Congress, said in 1997 that they were more likely than the working poor to pay less in taxes than they owed.
The intensified focus on low-income taxpayers resulted from pressure on the IRS beginning in 1995. Newt Gingrich, who was then House speaker, and other Republican congressional leaders were concerned about misuse of the earned income tax credit, a program that allows the working poor, especially those with children, to receive money from the government through a form of negative income tax. They proposed to sharply reduce the credit, prompting President Clinton to counter with a plan to bolster audits so that fraud and mistakes would be reduced.
The IRS was far less likely to take action last year against those who did not pay their income taxes, the new data show. Levies on paychecks and bank accounts were down 85 percent from 1997, and liens to secure the government's interest were down 69 percent.
Seizures of property to pay back taxes, the most severe enforcement action, were down 98 percent, to 161, from about 10,000 annually in the previous 10 years. Auditors recommended $4.5 billion in taxes and penalties last year, down from $6.3 billion in 1993.
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More on the Net:
Transactional Records Access Clearinghouse: www.trac.syr.edu
Internal Revenue Service: www.irs.gov
National Taxpayers Union: www.ntu.org