No. See this chart.
They do dramatically more audits on people making over $200,000/year than anyone else. It just is not worth the time to go after the small fries. On people making $25,000-$50,000/year only 0.72% of returns are audited.
I think you and GreasyJack are talking past one another. Low-income people are rarely audited, yes, but they frequently receive letters regarding mismatches in reported income, or even asking for proof of certain deductions (proof of child residency/parentage and education expenses in particular).
While these letters are not “audits” in the IRS terminology or statistics, the average Joe on the street will call it an audit nevertheless.
HUH? With no evidence other than “you must have been spending $X amount of money to maintain this capricious lifestyle, therefore must have had unreported income of $Y” they can demand you pay taxes on imaginary income?
So what about street people, mom’s basement dwellers, sugar babies living off a lover, etc.?
Or say I’ve been eating ramen so I can afford a Mercedes Benz on my poverty line income?
If mom is paying the expenses, then you explain that in the audit. If all you eat is Top Ramen, you explain that during the audit. Auditors are not mindless machines. If you’re telling the truth, you’ll have some evidence to back that up. The IRS will even accept letters from social workers and pastors to help explain living situations and assistance that might not appear on tax returns.
Also, it bears repeating, saving for retirement.
If the guy’s living on the street and hasn’t bought a new shirt in 5 years, he’s obvious not living beyond his means.
However, if you are like an Al Capone type and living in a fancy penthouse while driving a Mercedes to your bar bouncer job for $20,000 a year, you got some ‘splainin’ to do. Of course all that is a lot more difficult in the age of (digital) paper trails. Do you have a bank account? then regular in and out money is trackable, especially if it includes cheques - personal or otherwise.
If you can show you bought your Mercedes from 20 years of a steadily growing savings account, because you banked say, $1500 a month of your $2000 take-home salary (all paper trailed!) then the IRS will have no problem. Unless they notice “what about the Rolex and the 3-carat pinky ring?”
If you walk into a Mercedes dealership with $100,000 cash, there are a massive number of forms to fill out for a cash transaction over $10,000. Plus, the bigger bills are likely traced by serial number (the DEA/USS has a program that does that!!), so your claim that most of them have been sitting in your matress for 10-20 years can be verified. If you pay your penthouse rent with $2000 in cash each month, the IRS will want to know where that cash came from… each month… and you better be able to produce the paper trail to show income. You might be able to fake a reason for one small windfall, but it’s hard to come up with an alibi for a steady, long-term income.
Guess what - going “ha ha prove it!” has an extremely low success rate with the IRS that can freeze/seize your assets, while waiting for proof that they are not ill-gotten gains. they’ve got all the time in the world.
Mind you, the IRS usually does not waste their time on guys making an extra few thou under the table, but if they are collateral ddamage on some bigger case, well, bank account seizures and garnishees are not a lot of work compared to the damage they do to Joe Schmoe with a minimum wage income to start.
Plus I imagine somewhere in that mess would be a court order to report all income, making working undr the table a contempt citation that could risk jail and further seizures and fines.
Then lover-boy is paying the rent with a personal cheque, and the credit card bills, and the utilities, out of his bank account. Even if it’s cash, money in and out can be tracked. He withdraws $5,000 a few days before the bills are paid each month.
Oh, and he’d better be reporting that as a gift for tax purposes to the IRS.
I assume having a credit card and someone else paying it off, the tax implications were settled long ago. most sugar daddies have an accountant on retainer to make the details legit. Their goal in spending the money is not escaping the notice of the IRS, it’s probably escaping the notice of the wife.
Somewhere, somehow, the IRS will get its pound of flesh. In today’s electronic records there’s no such thing as no paper trail. the laws of the US and most other first world nations are arranged to stop money laundering, turning gobs of random cash into valid legitimate electronic money- because that is one of the biggest challenges facing crooks who want to own a Mercedes or a 3-carat pinky ring. How does one live with the conveniences of modern finance without drawing unwanted attention to their business? There’s a lot the legitimate among us take for granted in the world of finance.
Can I get a cite on this?
Based on my past involvement with banking, you’re looking at a CTR and a SAR.
That’s two forms.
Cite:
A business OTHER than a bank or casino files a Cash Transaction Report, FinCen Form 8300. For the purpose of this form, the definition of “cash” includes cashier’s checks, money orders, and travelers’ checks.
A bank or casino files a Currency Transaction Report (FinCen 103 for casinos and FinCen 104 for banks). Contrary to popular belief, the definition of “currency” does NOT include checks of any kind or electronic transfers.
Because of confusion between these two types of reports, you will frequently read the claim “banks must report all deposits over $10,000” on the internet. This is simply not true.
I’m not so sure that the lower audit rate means they’re just letting lower income people slide though. As your income goes up, the complexity of your taxes and the financial incentive to fudge goes up, so I would expect more audits up there even without the “small fry” factor. Plus, yeah, like dracoi says there’s enforcement steps short of an actual audit that can get most lower-bracket tax payers to fix their returns.
I used to work in an H&R Block years ago, and you’d be surprised how many people would come in with 1099s, not realizing that no withholding (and no SS) was deducted, and because it was a 1099, they had to pay double SS. They all came in expecting a refund, or the Earned Income Credit, and most left dissapointed and angry (and without having filed an income tax return).
When you have 1099 income below the minimum filing requirement for single and no dependents, or W2 income where enough is withheld from your taxes that you don’t owe anything, the government doesn’t really care. Before you’re 3 years past due, the government draws up a tax return for you at a single, no dependent rate. If they owe you, you’ll never hear from them. If you owe them, you’ll get a tax deficiency letter.
The T-Men come after you when your expenditures seem to be in excess of your reported income. Many luxury purchases are reported to the IRS as are cash withdrawals and deposits of $10,000 or more (that’s why money laundering is so popular). (Someone asked for a cite about this - I worked at an international bank for 20 years and saw a LOT of deposits and withdrawals for $9,999. I don’t believe that has changed.) Many mobsters and drug dealers are caught for tax evasion rather than for other crimes they’ve committed.
You would be amazed how many folks pay cash for computer fixes and dont ask for a receipt. If I wanted to I could skim about $500-900 a month off of my business in cash and the IRS would have nothing showing for it.
Benford’s Law, the subject of that link, has been my favorite most–counter-intuitive fact for a long time. (I almost certainly learned about it here, but I don’t remember for sure.) Until now, I never knew what it was called, though.
What do you think he did with the money? Accounting irregularities may not get him in trouble with the IRS, but they’ll get his bar membership cancelled.
In an earlier thread it was pointed out that even “structuring” is illegal - creating multiple transactions instead of one to evade the cash reporting limit.
Not sure what happened to former Prime Minister Brian Mulroney’s bar membership after he sued the Canadian government over allegations that he took bribes; then his lawyer negoatiated a half-price deal for the outstanding taxes and penalties when it did come out that he had received over $225,000 in cash in a brown paper bag.
But yes, lawyers in general have a great incentive not to cheat. First of all, a lot of your clients are a matter of public record; second, you flush your career down the tubes if caught - unlike, say. a plumber or roofer.
It works the same way in France, and it’s perfectly sensible.
What will happen is that the IRS will notice that you declare a minimum wage but nevertheless own a Mercedes Benz. They’ll look into it because it’s abnormal. If they can’t find any source of income besides what you’re declaring, knowing that Mercedes Benz don’t grow on trees, they’ll know that you necessarily had at some point an income that you didn’t declare, and you will be taxed on this basis.
As for the examples you give, it would be trivial for you to explain the discrepancy :
-street people (I assume you mean prostitutes) are supposed to declare their income
-If you live in mom’s basement, you can easily show that you don’t have a rent to pay, nor groceries, nor utilities, etc… hence that you could afford the Mercedes Benz.
-If you ate ramens, looking at your bank account will show that the money you earned accumulated on your account until you could afford the Mercedes Benz
-If you have a sugar daddy, then valuable gifts are a form of income and could be taxable (at least over here). So you should have declared the gift (be it the Mercedes Benz itself or the money you used to buy it). If you tell this to the IRS agent, he will tax you (or not, gifts can be a complicated issue) and maybe will add some penalty.
Now, if you can’t come up with any explanation for how you ended up with a mansion, a yacht and a Mercedes Benz despite only making $ 15 000/year, then yes, you’ll be taxed on the basis of what you ought to make to afford such luxuries because it’s plainly obvious that you’re lying and that you have other sources of income (and in fact probably have done something illegal).
I was thinking of hardcore homeless drug addicts, vagrants, just plain homeless too.
I mean it is one thing to have a mansion and Mercedes you cannot explain, it is another to have no assets and have someone tell you it takes 20K a year to feed and house and clothe an adult so despite the fact you say you were a homeless vagrant you must have had income so pay up. That seems like some kind of Kafka situation, despite the fact they have no proof you had income you MUST have had it.:smack: Or are we really going to pretend panhandlers and dumpster divers file and pay taxes?
I don’t think the IRS is going after homeless people. I also don’t think that the IRS is going after people just based on the amount of bling they have. I think that there are lots of transactions that are reported to the IRS. If they find the transactions reported by others about you not showing up on your taxes they look into that. Or if you come to the attention of the law for other reasons the other agencies will work with the IRS if it looks like you are living above your means.
As an anecdote one year I got a letter from the IRS saying I did not report income from some stock options from work. The problem was that I failed to file a work sheet that reported this income. Once I sent that in the IRS was satisfied.
I’ll bet you they do file taxes. They claim the neighbor’s kid and get a $4000 EIC refund. By having no documented income, they can play the system to claim exactly the right amount to maximize the refund.
There’s something like $30 billion in EIC fraud every year.
As for the IRS assuming income that doesn’t exist… are you not reading any of the responses? Are there any homeless vagrants who can’t offer any evidence of being a homeless vagrant?
Yea I’ll back out, sorry if I seemed hostile I just found it hard to believe the IRS can say you must have spend X therefore you made X, even without proof. But like I said near the start of thread they certainly prioritize cases.