The Chairman’s Report April 14, 2023

  • by:
  • Source: FAIRtax
  • 04/13/2023

What are your chances of being audited? 

This is the title of an April 7, Wall Street Journal article by Josh Zumbrun.  Here are some of his points:
  • Danny Werfel, the new IRS Commissioner, told reporters the IRS will not come close to hitting or exceeding any historic average rate.
  • For the 2019 tax year, there were 22.9 million individual tax returns reporting between $100,000 and $200,000 in income, of which 37,000 were audited. That works out to an audit rate of just 0.2%. That is down sharply from 128,000 audits, or 0.8%, out of 15 million returns in 2010. 
  • Over the 10-year period, the average rate was 0.45%, meaning the IRS could still have some wiggle room for audits without going beyond the historic average.
  • Fewer than 2% of tax returns have adjusted gross income above $400,000.
  • The problem, simply put, is that reported and actual income are different. Indeed, exempting taxpayers with reported income below a certain threshold can create incentives that widen the gap.  
  • An unscrupulous person who earned $500,000 might decide it is better to hide $100,000 instead of just a few thousand dollars, because they would then have the reported income of an ordinary person that the IRS has pledged not to pursue too hard.
  • Why would the IRS ever audit a lower-income taxpayer when auditing a wealthy taxpayer presumably yields more tax? 
  • Because from the IRS’s perspective, not all audits require the same effort. It spends a little over six hours on average auditing a taxpayer reporting $25,000 to $200,000 in income, but almost 34 hours on one reporting $500,000 to $5 million. 
  • Audit efficiency is best measured by additional revenue per hour of work, rather than audit rate. 
  • The second most effective use is auditing households at the opposite end of the scale: low-income people who claim the earned-income tax credit, which yields nearly $3,000 per hour.
  • Little time spent by the IRS doesn’t necessarily mean little time spent for the taxpayer. I learned this lesson the hard way a number of years ago when a mistake reporting a withdrawal from a Health Savings Account triggered an automatic letter. This is something less than an audit, and probably took the IRS mere minutes. But for me, it took dozens of hours plus hiring an accountant and a lot of stress.
  • So to answer the original question—what are your odds of being audited?—the audit rate turns out not be a good metric, because audits aren’t random. They are triggered by something unusual or a conspicuous mistake. 

It seems like all of D.C. is desperately trying to assure the American citizenry that they will not be subject to a time consuming, stressful and disruptive IRS audit.  

They realize that the biggest problem with the income/payroll tax system is that everyone detests all of the needless complexity and detests the IRS.  

D.C. has a problem.  They know that people are already upset by what is considered the “unfairness” of the income/payroll tax system.  

 People have become more aware that it is not just the special interests that are sold tax benefits that increase the burden on the ordinary American, but that their fellow Americans are not paying over $1 trillion dollars per year of taxes legally owed—which is also increasing the income/payroll tax burden on the rest of us.

The evasion, not the special income tax benefits sold by Congress to special interest groups, is the reason given for increasing the number of IRS audits—to catch the freeloaders who are cheating.

Unfortunately, the people who are evading the income/payroll tax do not check a box saying they are evading taxes.  To the contrary, they work hard to disguise their evasion.

The IRS must conduct extensive and intrusive audits on everyone to have any hope of detecting the evaders.  

This means that most Americans who try to pay their federal taxes will find themselves being treated by the IRS auditors like they were tax cheats.  We will all be guilty until we can prove ourselves innocent.

Isn’t it time to end this ludicrous tax collection system and the IRS?

When the FAIRtax is enacted, there will be no need to fear being audited by the IRS because there will be no more IRS.  

Under the FAIRtax, there will be no more tax returns  We will pay our taxes when we make retail purchases of new goods and services.
There is going to be a vote on the FAIRtax in the House of Representatives.  McCarthy and the other elites didn’t want it, but it was forced on them.

We now have the opportunity to force all Members of the House to show where they stand.  They can:
  • Vote for the present income/payroll tax system or for the FAIRtax.
  • Support the corrupt income tax and the IRS or eliminate it.  It can’t be any simpler than that.
  • Hide the true cost of their government or pass the FAIRtax and show everyone the true cost of government on each retail receipt.
  • Support the largest transfer of power from government to the people, the FAIRtax, or not.
If Members think that the FAIRtax needs to be changed, then they can propose the change.  Don’t let them reject the entire bill because it has a “flaw” that can be easily addressed.  

Please stand with us and demand that your representative support a much fairer, much simpler and much more efficient way to fund the government—the FAIRtax!

The FAIRtax doesn’t pick winners and losers.  Because it taxes spending, not earnings, the FAIRtax lets everyone save for their retirement tax free.  

The FAIRtax collects the revenue that the federal government needs to operate but does it in a way that has the least impact on our individual freedom and the least impact on our economic prosperity.  

There are no tax returns to file and no records to keep.  We pay our federal taxes when we make retail purchases of new goods and services, and there is no need for the IRS.  If you sell a used couch or used jet ski online, there is no FAIRtax due on that transaction.

The FAIRtax will allow us to TAKE BACK CONTROL.

The income/payroll tax system is broken and no longer working—we can’t repair it but we can replace it with the FAIRTAX!
We all should remember Edmund Burke’s warning that applies to our efforts to TAKE BACK CONTROL,
“Nobody made a greater mistake than he who did nothing because he could do only a little.”
We should also remember this quote from George Orwell's 1984, which, if we do nothing, may foretell your and your children's future:
“If you want a picture of the future, imagine a boot stamping on a human face—forever.”

We can write letters and make calls to our elected representatives and attend Zoom town hall meetings demanding that if they really want to allow Americans to “TAKE BACK CONTROL”, the first step is to eliminate the income/payroll tax system and enact the FAIRTAX!

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