However, their auditing rates have declined at a much greater rate. The decline in funding and auditors means that taxpayers, and especially those who earn the most, are much less likely to be trapped paying their taxes less than they were a decade ago. Since the IRS conducts so many EITC audits, between 380,000 and 600,000 a year for at least the past decade, hundreds of thousands of taxpayers are likely to have avoided applying for credit in response to being denied through an audit. Raising taxes on the rich is a more convincing cause than increasing the operating budget of a bureaucracy that most American voters probably hate to think about.
Counties with the highest auditing rates are not found in Connecticut hedge fund campuses or lobbyist enclaves in Northern Virginia. Most EITC audits require taxpayers to dig up documents that show that a child meets the legal “qualifying child” threshold, a status that is different from that of dependent. According to the study, in the years following an audit, children who appeared on a taxpayer's return were often listed on a different taxpayer's return. In the years after the audit, wage earners were 68% less likely to apply for the credit compared to similar taxpayers who had not been audited.
As the agency's ability to audit the rich crumbles, its scrutiny of the poor has remained stable in recent years. At one end of the spectrum were tax returns with warning signs that almost certainly made them audited. The sharp reduction in audits of the rich contributes to the fiscal gap between the amount of taxes owed and paid. Both members of the Congressional Progressive Caucus have recently introduced separate bills that would increase the IRS's enforcement budget and auditing rates.
Audits of the rich continue to fall, while those of the poor remain stable, and the two auditing rates are converging. More than one-third of all auditing objectives include the earned income tax credit, one of the largest anti-poverty programs in the country. In a statement, IRS spokesman Dean Patterson acknowledged that the sharp decline in audits of the rich is due to the fact that the agency has lost so many qualified auditors. Meanwhile, a new study shows that auditing poor taxpayers make them much less likely to apply for credits to which they might be entitled.
