last week the IRS announced that they would be going after 125,000 Americans
who according to their records earned over $400,000 a year but didn't file tax returns
the result of this activity could be worth as much as $100 billion as Uncle Sam goes
after people who haven't paid taxes since 2017 this is great because everybody should
be paying their fair share but if the IRS knew these people were cheating the
system then why the [ __ ] has it taken them so long to finally do something
some of the millionaires who haven't filed Federal returns since 2017 the more money
you make the more you have to pay in taxes right well not always that allowed Jeff Bezos Elon Musk
Warren Buffett and others to pay zero income taxes at least 55 of the largest corporations in America
including FedEx and Nike also managed to pay no federal corporate income one of his chief goals
is quote restoring fairness to the tax system that means targeting the wealthy Partnerships
and large corporations the IRS may seem like an all powerful Boogeyman but the reality is
that the department is underfunded undermanned and having to make tough decisions about what
kind of work will deliver the greatest return on its limited resources the IRS has continuously
been defunded by politicians on both sides of the aisle simultaneously the tax code has become more
complex allowing sophisticated filers with high incomes from multiple sources to file deductions
offsets credits exemptions and deferments on their Returns the only way to fully verify that these
filings are being made correctly is for a trained tax agent to assess them individually but the IRS
just doesn't have the manpower to do that so for most complex returns it has been accepting the
honesty of the filings the IRS simply has to make budget decisions based on what is going to give
them the greatest return on their investment and that is by going after easy targets according to
a report by prop publica a person earning $20,000 a year is now more like to be audited by the IRS
than someone earning $400,000 a year the Earned Income Tax Credit has been a particular focus of
the department because it is a bonus paid to people on low incomes that is simple to claim
when filing your taxes but if the IRS audits your claim it's up to you to prove that you
did legally qualify for this credit the maximum that a single person can earn to qualify for this
credit is just $ 17,640 a year this range extends up to 63,360 $98 for a married couple with three
or more children if you qualify for this credit you will not have the time or money to fight an
audit so the IRS knows they are likely to just give up and pay them what they tell you within
the department this means that the Earned Income Tax Credit audits have the highest likelihood of
success which is why they continue to focus on them but if IRS staff are already spread so thin
instead of focusing on getting back a few hundred from millions of poor working Americans surely it
would be easier to get back millions of dollars from just a handful of rich people right wrong
the recent announcement that the IRS will be going after non-filers with incomes as high as
$1 million a year might sound like a step in the right direction but there are three simple reasons
why it is taken so long and why it's unlikely to achieve what you hope it to achieve to start with
some good news the first reason this has taken so long is actually a 300 IQ play from the IRS
the IRS themselves have admitted in their own press release that more than a decade of budget
cuts prevented the IRS from keeping Pace with the increasingly complicated set of tools that
the wealthiest taxpayers used to shelter or manipulate their income to avoid taxes so to
do the best they could with what they had they took inspiration from online video games have
you ever been playing online only to see the same people clearly cheating in every Lobby
you end up in they never seem to get banned even if you report them over and over again
well there are two reasons why this might be happening the first reason is that you
are playing Modern Warfare 3 and the developers don't care because they are already working on
next year 6 DLC or if you play a good game it's because they are waiting to do a ban wave where
they ban all known cheaters at the same time if a game Bann cheaters as soon as they were detected
it would let the people developing cheat software make small adjustments to get around detection If
instead the developers just made a list of all the cheaters and ban them all at the same time
every month it makes it harder for them to reverse engineer how much they can get away with the IRS
is going after tax cheats the same way and they have been making a list since 2017 specifically
for for a very important reason the statute of limitations for conviction on most tax fraud is
6 years so 2017 is as far back as the IRS can go so if you were committing tax fraud before
2016 you were probably in the clear by auditing 6 years worth of suspected cheats all at the same
time the IRS will be able to recover even more money in two ways the first way is by making it
harder for tax lawyers and accountants to find new loopholes to get around how they have been
reporting income which would make it possible for Uncle Sam to collect on at least 6 years worth the
back taxes instead of just one year before they change how they file their taxes again the second
way is by taking advantage of the failure to file penalty which charges filers 5% of their unpaid
taxes for every month that the return is late to a maximum of 25% and then in addition to that the
IRS can also charge interest on unpaid taxes and penalties the IRS has letting people who haven't
paid their taxes be a high interest savings account for them but if you think this sounds
like the IRS is finally going after who they should have been targeting the entire time then
sorry I have some bad news for you so it's time to learn how money Works to find out why it took
the IRS so long to finally go after Millionaires and why it probably won't change anything this
week's lesson is sponsored by brilliant brilliant is a learning platform designed for comprehending
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with brilliant brilliant helps you build real knowledge in minutes each day with fun lessons
you can do whenever you have time to get brilliant for free for 30 days go to brilliant.org how many
works or click the link in the description and you'll get 20% off brilliant annual premium
subscription there is one reason why the IRS is finally able to go after high income earners
all of the sudden and if you read their press release closely they are not being shy about it
they don't normally have enough money to do big audits like this but this year they are getting
a boost thanks to Temporary funding coming from the inflation reduction act the new initiative
made possible by inflation reduction act funding with new inflation reduction act funding available
the IRS now has the capacity to do this core Tax Administration work with the inflation reduction
act resources the agency finally has the funding to identify non-filers ensure they meet this
core civic responsibility and ultimately help ensure fairness for everyone who plays by the
rules the IRS has a variety of efforts underway to improve tax compliance in overlooked areas where
the agency did not have adequate resources prior to the inflation reduction act funding it's not
every day that you see a public servant graveling for scraps of Public Funding so they can do the
bare minimum of their job the IRS budget has been continuously cut by politicians on both sides of
the aisle as a measure to reduce government spending and even with additional inflation
reduction act funding it is only caught back up to the same level of funding it received in 2013
but it's still trying to do more with less with a 10% reduction in Workforce overall the tax office
also has more people to audit now because the population has increased cutting IRS funding
to save the federal budget is like you trying to save money by not showing up to work you'll save
a bit on gas but you'll lose all your income not a great strategy a study conducted by the
Congressional budget office found that increasing the budget for the IRS would actually result in a
5 to 9 100% increase in net revenue every year the government could have purchased Nvidia call
options and not made returns that good but to have any say over federal budget policy
you need to either be wealthy enough to fund a congressional election campaign or suck up
enough to people who are wealthy enough to support your campaign unsurprisingly none of these people
are interested in budget allocations that would see them paying more tax short funding is the
second reason why this announcement that the IRS is finally going after millionaires is nothing to
be excited about according to the pay transparency site glass store the median salary for an auditor
at the IRS is $75,000 a year for that role the IRS hiring guidelines want a college degree in
business finance or economics and at least 5 years experience in tax accounting or a fing
PhD in accounting auditing or taxation this is also for a temporal on a one-year contract in the
private sector a job with the same requirements pays almost double and it's for a full-time role
government jobs are usually more stable but with budget cuts at the IRS nobody's job is safe if
you were a qualified accountant or auditor that had the skills and experience to make sense of
Highly complex returns you could make much more money and have more career stability by working
for the people submitting the returns there are talented people working at the tax office
but they aren't there out of their own best interests the taxpayer Advocate service the
independent office within the IRS prepared a report to Congress which said that the lack of
sufficient and highly trained employees at the IRS was the most serious budgetary problem in
America according to this report the difference between taxes that actually get paid and how much
is owed totalled about $580 billion in 2019 and is expected to rise to a total of $7 trillion by
2029 the recent announcement focusing on certain non-filers will optimistically bring in just $100
billion according to the IRS's own estimates barely a drop in the bucket and that's because
of the third reason why this announcement isn't the good news you think it is the IRS is still
going after easy targets the millionaires the IRS are talking about auditing in this latest
initiative are mostly 1099 private contractors who run their own small business where they are their
only employee this tax structure is most common with gig workers independent trades people and
Consultants working for themselves it's good that these people are being forced to pay what they owe
if they haven't filed their taxes but even if they have six figure Revenue their taxable income after
expenses is usually much more modest if you work as an independent electrician billing $400,000 a
year you have the cost of your supplies wear and tear on your tools Merchant fees gas insurance and
advertising to pay before you can pay yourself anything a 1099 contractor will be known to the
IRS even if they don't file a return because the company they contracted for will report them as an
expense for themselves so they don't have to pay any tax on that money the kind of people earning
reportable private contractor income and not filing return are not the kind of sophisticated
tax Dodgers that the IRS would like you to believe they are they are most likely people
running a small business that can't properly keep track of money going in or out the truly wealthy
and sophisticated tax cheats that the IRS has systematically failed to hold accountable would
never dream of not filing their tax returns their returns are prepared meticulously by a
large team of accountants with tax tax lawyers on retainer to shut down any underpaid auditor
Brazen enough to question their numbers I am going to be writing a list of the top five
strategies that ultra high net worth individuals actually use to avoid tax semi leally over on
my completely free email newsletter compounded daily so subscribe to that using the link in the
description one of the most amazing tax rules they have created is something called carried
interest which means private Equity managers and hedge fund managers pay a lower tax rate
than you do legally go and watch my video on what the [ __ ] private equity actually does to see the
ridiculous business structures they use to make this possible to keep on learning how money works