Popular culture

The IRS continues to target the poor

If you live in the United States, your federal taxes are due today, a day that offers many grim reminders. Here’s one: While many of America’s largest and most profitable corporations pay little or no income tax, and the wealthy can afford to avoid paying their share, the federal government continues its war on poor. An example of failure within US federal policy is the ongoing policy of the IRS (Internal Revenue Service) to continue with the disproportionate number of audits of poorer US households.

So there is an opportunity for companies in the financial sector and related to the financial sector to implement one of their social impact programs, especially since it is currently Financial Literacy Month. For many families earning $25,000 a year or less, how can the latest free fintech apps or campaigns to improve the way citizens approach personal finance help if there’s the specter of an IRS audit at hand? the skyline? With more than half of Americans estimated to have less than three months of savings to cover an emergency, an envelope in the mail from the IRS could be as scary as a trip to the ER or the sudden need for a repair. car. Bottom line, the less a person earns, the less likely they are to have a speed dial accountant.

Getting back to the threat of an IRS audit for working families: current evidence suggests that the IRS has no plans to put the brakes on these plans anytime soon. In fact, Syracuse University’s Transactional Records Access Clearinghouse (TRAC) found that audits of employees earning $25,000 or less have increased more than 25% so far this year compared to the 2021 tax season. .

“If the IRS continues at this same rate for the remainder of this fiscal year, audit rates would climb to 13.5 per 1,000 returns, slightly higher than the phenomenally high rates that occurred last year when the ‘IRS audited poorer families claiming an anti-poverty earned income tax credit at five times the rate for everyone.” concluded the TRAC researchers.

The issue is starting to get the attention of Congress, with Sen. Elizabeth Warren (D-MA) and Rep. Judy Chu (D-CA) among leaders calling on both the U.S. Treasury and the IRS for these audit rates distorted.

Much of the problem lies with the federal government’s decisions to dramatically cut the IRS budget over several years, a trend that has occurred under the Obama and Trump administrations. But few observers notice that the IRS continues to lose staff not through mass layoffs, but through attrition.

“The last time the IRS had fewer than 10,000 revenue officers was in 1953, when the economy was one-seventh its current size. And the IRS continues to shrink,” Paul Kiel and Jesse wrote. Eisinger for ProPublica at the end of 2018.

Another issue is the lack of transparency about how the IRS currently conducts its audits. “While the Biden administration’s American Family Plan tax compliance program has pledged not to increase audit rates for those earning less than $400,000 a year, there is no consistent public release of audit data or plan for releasing audit data, making it virtually impossible to monitor. honoring that commitment,” Warren and Chu wrote last month.

Years of bad headlines plus the way the tax agency has been portrayed in popular culture have given the IRS a brand reputation that ranks about as high as the Ford Pinto and New Coke. . Nevertheless, it is clear that having a smaller team of auditors today than when Dwight Eisenhower was president, even with the transformation of technology now available, makes no sense. Current IRS chief Charles Rettig told Congress earlier this month that the federal government is losing about $1 trillion in taxes paid annually. But trying to extract that amount from hourly-paid workers rightfully claiming a federal tax credit is financially equivalent to drawing blood from a stone.

Coming back to financial inclusion, the IRS’ continued reign of audit terror opens a door for financial and professional services companies. Offering support to poor families who receive such a bad gram from the IRS would not only offer relief to families but also provide an engagement opportunity for companies as they allow their employees to tackle some much needed community work in the neighborhoods where they live. and the work.

Image credit: John Tyson via Unsplash