IRS is going after Americans who earn more $400k but don't file tax returns | Hacker News Reader

IRS is going after Americans who earn more $400k but don't file tax returns

fortune.com

31 pointspaulpauper28 comments

We'll never get a grapple on tax evasion until our tax codes are as simple as possible. Filing taxes should be an equation simple enough for elementary students.

If income is really an avenue we wish to tax, keep it simple. Graduate tax rates across a few brackets if that's really important but throw out all write offs, deductions, etc. Just tell us what % we owe based on total income. Done.

I'm pretty sure folks who earn over $400k can find accountants to do their grappling for them.

Until "elementary students" can earn that much, it's not the problem they're addressing.

Many people have an occasional year where they make very high incomes, for exam when selling a house or even fictional paper gains when exercising stock options as a startup employee. So, given that they aren't making huge salaries but just had a windfall (which may not even be real in the case of startup options), they may not have accountants or be well equipped for this situation. I had those issues a couple years ago with options, where the government says I had a huge income due to capital gains (on paper).

The IRS spends a little under $15B per year. Solving problems for the rich doesn't have to be the only motivator, drastically simplifying our tax code would reduce the deficit and make it much easier to enforce our tax laws.

What if you're a business? You're supposed to pay taxes on your net revenue, not gross revenue. How do you deduct your business expenses from your taxable income?

You can't get rid of deductions without having double taxation.

The solution here is to remove the income tax entirely. Just get rid of it. We did fine without income taxes for 150 years. Then when it was introduced, 95% of people didn't even have to file anything for a few decades more. Even if you're a business, like a homestead, operating a lemonade stand, a contractor or whatever you shouldn't be having to file paperwork every year period. If they want to tax our income do a VAT or sales tax, which is still a compliance nightmare for businesses but at least for your average person it just magically happens, no reporting or paperwork required.

How are you going to outlaw rich people lobbying for special exceptions in these simple rules for their specific circumstances? That's rhetorical of course, you can't and even if you managed to reset everything, the exceptions would be lobbied for and won, and the tax code would slowly become more complex over time until it looks like it does today.

Laws don't pass themselves, you don't necessarily have to outlaw lobbying.

It sounds like you have the assumption that legislators will always eventually give in to bribes and lobbying. If that's the case, what the hell are we doing here at all? We'd be better off with no legislators at all.

> assumption that legislators will always eventually give in to bribes and lobbying

Yes this is my assumption. Not all legislators and not everytime, but on a long enough scale eventually tenacious lobbying will find ones that will and get what they want.

> We'd be better off with no legislators at all.

I'm cynical, but also practical. As churchill said, "apart from all the others, democracy is the worst form of government". Its advantage is that sometimes bad laws can be overturned and good ones put into place - at least for a little while. It has happened before and could happen again. Just because I think things are awful now doesn't mean I don't think they could be worse.

If were going with a long enough time table, wouldn't we have to assume this inevitably plays out as either a failed state or some form of a fascist state after industry takes over the government?

If the expectation is that legislative bodies will always eventually be bought, and that there isn't a structural change in government structure to avoid this, why have the state at all? Every law executive order, etc passed is effectively removing authority and self determination of the individual and giving it to the state, either for the greater good or because we simply think they will use that power better. If we know they'll eventually be bought, why would we possibly want to centralize that power and authority in the first place?

Flat 15% tax federal, 10% state, for those making > 100k (and the 100k amount can adjust slowly upwards over time).

I have absolutely no idea what the right tax rates would be, or how wed define "right", but in all for something simple enough to be definition in a handful of sentences.

Flat rate 50% federal, 49% state for those making above $1M. (The 1M amount can adjust slowly upwards over time.)

When I first moved to Washington DC I kept my Washington state CPA. He neglected to file DC taxes (Washington state doesn’t have income tax) and 9 months later I got a letter from DC telling me I was delinquent by $x. It was by far the easiest taxes I ever paid.

State/local taxes appear easy because they often piggyback on the ultra-complex federal calculations, using the federal AGI as a base. There are state/local deductions and credits, but these are often geared towards interest groups who get to know them well - not the average guy.

I wonder by numbers how many of these people had ~no income, but had securities trades that with the cost basis ignored look like $400k of income? or other similar phantoms.

Decades ago I was in that boat myself one year: I became very ill a few weeks ahead of tax day and was hospitalized through it until a couple weeks after. This resulted in totally spacing on filing my taxes. The next year I couldn't find my prior year paperwork but thought I just misplaced it and just filed that year normally.

The next year after that I got a letter from the IRS "we computed your taxes for you, you owe a million dollars"-- quite a heart stopper!

In reality I owed something like $1k, and much of that was just the penalty for failing to file.

The thing is, the way the tax system is structured, it's much better if you don't file and stay under the radar. The IRS knows that but they probably didn't pursue it due to it being a marginal phenomena and lack of abilities. Now that they need money (and maybe the size of these cheats is higher?) they are going after them.

It is also possible that they are over-estimating the amounts owned and once they get to auditing they find out that these "millions of dollars" are just "$1Ks of dollars" and the audit doesn't turn that profitable after all.

> I wonder by numbers how many of these people had ~no income, but had securities trades that with the cost basis ignored look like $400k of income?

I think a common misconception is that these measures target fat cats rolling in $400k+ in personal ARR. However, if you’re a retiree and just sold the family farm to downsize, then you could easily have $400k in income for a tax year.

The real estate escrow closer would notify the seller(s) they are providing the IRS with the transaction information (Form 1099-S). It is straightforward to either pay taxes on the gains (Schedule D and Form 8949) or demonstrate primary residence tax exclusion ($250k individually, $500k as married couple). This is not burdensome to verify.

https://www.irs.gov/taxtopics/tc701

If someone just sold an asset and are reporting $400k in income, doesn't that mean they received $4 million in cash in the sale?

Income is not income tax. Selling a property for $4 million is $4m in revenue which could be anything from negative to $4m in income.

How did you resolve this? I just realized today that I forgot to file two years ago & want to take care of it asap

Just file it. You may end up underpaying the penalties and interest, if you do they'll send you a statement for the difference.

The important thing is to comply with your obligations and get any underpayment down to a small amount ASAP.

In my case I got a little fixated on exactly computing the penalties plus interest which delayed resolving it. While researching it I found a court case where the IRS was asking the court for permission to approximate the interest because it was too complicated to compute. 0_o. At that point I gave up trying to compute it myself, but immediately after they sent me another notice with updated values and that was enough to disambiguate the two competing readings of the tax code and I was able to pay it exactly. :P

Almost two decades later I know better-- just put in a reasonable effort and let the IRS worry about it.

https://www.irs.gov/businesses/small-businesses-self-employe...

You file it and the IRS sends you a piece of mail that asks you to deal with it.

I recently did it for a 13 yo company missing many years of taxes and it wasn't a huge deal.

I could imagine many small business owners falling into this category.

I recommend you file taxes via paper if you want to avoid being audited. Everything is manual for paper returns. With electronic filing it goes into the ML anti-fraud pipeline.

Paper returns are audited at a much higher rate, as errors on the return will trigger an audit. Audit rate also rises with higher income, as does circumstances deviating from the mean (digital assets, foreign accounts, certain partnerships, etc).

https://pro.bloombergtax.com/brief/common-irs-audit-triggers...

https://www.irs.gov/pub/irs-utl/statement-for-updated-audit-...

IRS has an ML/AI team funded with the Inflation Reduction Act and is fully digitizing, which will assist in finding tax evasion and fraud. They even have a contract with Chainalysis for tracking public crypto (Chainalysis Reactor).

https://www.chainalysis.com/chainalysis-reactor/

https://fedscoop.com/irs-to-use-ai-to-crack-down-on-milliona...

https://fedscoop.com/irs-launches-digitization-effort/

> Using IRA resources, taxpayers are now able to respond to more notices online, and the IRS says it has made significant progress adopting new technology that automates the scanning of millions of paper returns.

> In the coming two years, taxpayers will be able to digitally submit all correspondence, non-tax forms, and responses to notices which will allow more than 94% of individual taxpayers to no longer ever need to send mail to the IRS, according to the agency.

> It added that taxpayers who still want to submit physical paper returns and correspondence will be able to do so.

> Paper returns are audited at a much higher rate, as errors on the return will trigger an audit.

Maybe for errors that cost the government money. I've always filed my taxes with paper returns. (40 years) I've made errors two or three times; but, they've always resulted in an additional refund amount.

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