The IRS makes some changes

Back in 2006, the government eliminated half of the lawyers who audited the wealthiest Americans.

The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days.

But it wasn't just wealthy individuals. The wealthiest corporations were given a pass, too. By 2008, audits of the largest corporations had fallen for the third straight year.

Who did they audit? The little guy.

The IRS audited smaller companies 41 percent more often in 2007 than in 2005, and companies with $10 million to $50 million in assets were 29 percent more likely to be investigated in 2007 than two years previously, according to a new study from the Transactional Records Access Clearing House at Syracuse University. Meanwhile, companies with more than $250 million in assets were nearly 40 percent less likely to be audited than in previous years.

So from 2005 to 2008, wealthy Americans had half the previous staff watching them and audits of wealthy corporations dropped 20%. In that same time, audits of small businesses rose 41%.

All of this started in 2005. That same year another benchmark was reached...in income disparity.

The richest one percent of Americans earned a postwar record of 21.2 percent of all income in 2005, up from 19 percent a year earlier, reflecting a widening income disparity among different classes in the nation, the Wall Street Journal reported, citing new Internal Revenue Service data.

So while the richest 1% of Americans were reaping historical plunder, the government cut the staff that audits them by 50% and increased audits on small companies by 41%.

While the numbers of millionaires grew, the numbers of audits fell. Yearly.

Those with incomes of $1 million and above had a 5.6 percent chance of getting audited in fiscal year 2008, which ended last September, down from 6.8 percent the previous year, according to IRS figures. The actual number of millionaires audited fell from 23,200 to 21,874; the number of millionaires filing tax returns grew from 339,138 to 392,776.

As those millionaires grew in numbers, the average American had less and less. By 2007, net worth of the average American family was less than it was in 2001. Unfortunately, the income disparity affected groups some more than others.

But here's something being talked about much less: The gap between the wealth of white Americans and African Americans has grown. According to the Fed, for every dollar of wealth held by the typical white family, the African American family has only one dime. In 2004, it had 12 cents.

For every dollar of wealth from a white American, a black American had a dime. And those white Americans were making less than they were six years earlier. So imagine how shitty it is to have that dime instead.

But things are changing.

The U.S. Internal Revenue Service is preparing to pursue other foreign banks for allegedly facilitating tax evasion by wealthy Americans following its high-profile case against Switzerland's UBS AG, an IRS official said on Monday.

UBS, Switzerland's largest bank, in February acknowledged that it helped U.S. clients conceal assets from the U.S. government. It agreed to pay a $780 million fine and identify some of its American clients.

Not just that, Internal Revenue Service Commissioner Douglas Shulman is now telling Congress that the IRS will "ease up on audits of small businesses".

Shulman testified before the House Small Business Committee about the agency’s plans to help entrepreneurs take advantage of tax relief in the recently passed stimulus bill, the American Recovery and Reinvestment Act. He also described the IRS’s plans to do more outreach and education to small businesses.

While I have been fairly critical of President Obama, this is a good thing for his administration. It also puts paid the lie that the "Socialist" President wants to punish small businessmen and take away all your money. Quite the contrary. Unlike the Bush years, the Obama administration is looking to punish wealthy tax cheats and relax audits on small businesses.

Easing up on the small business owners has a second benefit: it wasn't creating much revenue anyway.

Dean Zerbe, national managing director of the alliantgroup LP, said the decline in overall large corporation audit coverage is disturbing given what he says is a shift in IRS resources towards more of a focus on small and medium-sized firms.

Audits of small and mid-sized firms don't produce as much tax revenue, and about one-third of the time produce no change in taxes assessed, according to Mr. Zerbe. "They spend a lot of time doing root canals on people who are basically compliant," he said.

Catching the wealthy tax cheats, however, would create a great deal of federal revenue.

"In the U.S., we're losing about $100 billion a year, because of tax evasion and other abusive practices," Robert Roach, counsel and chief investigator for the U.S. Senate Permanent Subcommittee on Investigations...

While I have no illusions that a bright new IRS will reduce the income disparity that punishes so many while rewarding so few, I do have hope that these changes will help the people who deserve it while catching and punishing those who have made millions off the poorer citizens while they evaded paying taxes for years.