NCPA - National Center for Policy Analysis

Tax Cheating Among The Affluent

April 10, 2002

Although federal tax officials believe cheating is becoming more common among affluent Americans, the Internal Revenue Service pays more attention to the returns of the working poor and middle-income groups.

A New York Times examination of IRS records and an analysis of this phenomenon found that the agency can identify at best only a tiny percent of the cheats -- and pursue only a few of them.

  • The IRS audits the working poor at a much higher rate than wealthy people.
  • The agency does not track non-wage income as closely as wage income -- and in some cases does not verify it at all.
  • For example, people who claim the Earned Income Tax Credit must produce certain evidence to verify a child in the home and other proof of their eligibility -- while people who own their own businesses, collect rents from tenants and realize gains on other investments are subjected to less rigorous standards.
  • Historically, the IRS has seen little evidence of cheating by affluent taxpayers -- so in 1995 the government began focusing on wages.

But now the government believes cheating is on the upswing in higher brackets, and an adjustment in IRS habits is due.

Source: David Cay Johnston, "Affluent Avoid Scrutiny on Taxes Even as I.R.S. Warns of Cheating, New York Times, April 7, 2002.


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