No? Unless you mean to say that the only way to make money is to not pay taxes, and not only that, but if anyone makes more money than someone else, they do so by paying less taxes.

I'm not sure how your statement follows what I said.

I was indicating that there may be a lot of people that appear "poor" to the IRS with neither a lot of income nor a lot of losses/deductions to offset income that may in fact be earning a lot of money. And efforts to enforce tax collection of the "rich" will not identify these people.

This article specifically talks about _unreported income_ among the "top of the income distribution". I'm saying that if they're known to the IRS as being at the "top of the income distribution" what may be lurking below the top that goes uninvestigated.

> After correcting for this bias, we find that unreported income as a fraction of true income rises from 7% in the bottom 50% to more than 20% in the top 1%, of which 6 percentage points correspond to undetected sophisticated evasion. Accounting for tax evasion increases the top 1% fiscal income share significantly.

I was being a little bit facetious in my attempt to point out the problems with the "by definition". There are two factors: the amount earned, and the percentage of that taxed. Tax evasion is paying less than what one "should" (everyone probably knows what I mean, but this can be nitpicked, so I'm adding quotes), for that amount earned. You are right in that the amount of unpaid taxes is more easily larger the more you earn, but by no means is a definition here that follows.

Your point, as you explain it here is still a valid one though, but I didn't read your prior post as to mean the same. Since tax evasion can be both hiding income, as well as finding loop holes. Maybe they are more the same than I had thought. Hm. Maybe I learned something.

As I see it, for rich enough people, tax evasion is akin to a tax on moral conscience. They pay as much as they think they should, or so it seems.

Not really. There's a question of if we're talking about the reported income distribution or the actual income distribution, of course.

If it's reported income distribution, you could have a lot of reported income as well as some amount of unreported income.

If it's total income distribution; having a lot of unreported income would put you at the top, but of course, it's hard to know about it, unless the income is discovered.

It's hard to hide a lot of money.

You can dodge taxes fairly completely when you're small (think cash only employment and side gig) and there's not much to tax but they have plenty of incentive to track you down and get your money if you get big and it's hard to hide that much money moving around. Government isn't gonna let that much money slip through its fingers.

So the rich report their income, mostly, or at least enough of it to be rich on paper. They just minimize their liability as much as they can.

If you haven't read Rettig's letter[1] to Wyden explaining this, you might want to. It would inform you on the complexities that TCOs face when performing different types of audits. Why different types of audits? Tax fraud takes different forms largely based on class. Working class tax fraud is handled by correspondence audits, while capital class tax fraud is handled by face to face examinations. You can imagine the difference in training and cost without me explaining it to you. (Also it's in the letter)

This difference in types of audits brings along a difference in cost to the IRS. correspondence TCOs cost less than face to face examiners. Correspondence examiners are GS-5 through GS-8, while face to face examiners are GS-7, 9, and 11. It simply costs more to audit the rich right now. If you want to pay correspondence TCOs the same as face to face TCOs, or believe that high value audits should be conducted by correspondence TCOs that's one thing. But this topic deserves an understanding of the structural challenges that auditing the capitalist class entails.

[1] https://www.documentcloud.org/documents/6430680-Document-201...

Except people with a lot of money can afford a team of lawyers and accountants to grapple with the IRS. Middle income people can't afford to fight back. The path of least resistance is to ignore the big fish and just catch as many small fish as you can.

> Grapple

I think this completely mischaracterizes the relationship that wealthy participants have with the IRS.

Factor in these two things:

1) The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people. Very many interactions with the IRS are pre-emptive as well as collaborative. The poorer experience is completely retroactive enforcement with the tax authority seemingly already having made a conclusion about what you owe at the worst time for you to come up with that money. Very big difference in experiences.

2) Lawyers and accountants know the law better than the IRS.

Yes, “fighting back” can be an accurate term, but its more accurate to say “respond” at all. On the wealthier side, it is rare that an interpretation devolves into an adversarial relationship. The IRS is motivated by having a clear lineage of funds and rationale, as opposed to actually optimizing revenues via taxes.

>The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people.

The working class gets audit mail, while the capitalist class get to talk face to face. It is the privilege of talking it over. If you can take just a moment to view the IRS as a customer support line, the rich get to talk with a real human.

But as I mentioned, its not adversarial to begin with. Most tax compliance - although much more obscure and less used - is telling the IRS in advance how little you will pay.

From an 83(b) election on an arbitrarily short vesting schedule you made for yourself for discounted assets, to Advance Pricing Agreements which you pay for, to Private Letter Rulings, to tax-exempt status for your non-profits. It just isn't the same experience with that agency.

I don't think I'm in disagreement, but maybe you can tell me. The popular portrayal that a face to face meeting with the IRS is the worst needs to be debunked. Anyone who thinks a face to face meeting with a TCO needs to keep in mind who is getting face to face examinations and what that implies. It's much more cordial than the adversarial mailers that the prole gets.

We're mostly just talking about different things. Yeah audits are not the end of the world, and every transaction that was filed needs to already be rationalized for how it would be explained in an audit.

I've been talking about all the interactions one can have with the IRS before taxes are ever filed.

Thank you for taking the time to explain that a bit more. Yes we're talking about two different things.

I see where you're coming from; but isn't it more the case that the kind of audit you get depends on the kind of error/fraud you have in your return?

My understanding is that the majority of "working class" audits are around tax credits and that the IRS knows to a moral certainty that there's a problem due to internal inconsistencies in the filing itself.

Chiming in on this, its mostly correct, but not a key distinction as wealthy market participants have many tax credits as well. EITC (Earned Income Tax Credit) is the majority of their enforcement though, according to IRS agents.

The IRS uses a social graph which affects the working class more than others. Basically, if you get paid by someone and that someone deducts the payment on their taxes, the IRS is looking for the recipient (you) to see if the IRS was paid by the recipient to make up for the deduction. So this is done with W-2 employment and 1099 payments.

This affects individuals more so because there is no clear guidance on whether 1099 filings are necessary for payments to LLCs and other entities, and there likely never will be. LLC's are not expensive or exclusively the domain of the wealthy, but in practice they are, and the opportunities available to a contractor to act as an individual versus in a corp-to-corp payment situation are pretty heavily correlated to the value of the contract.

Just one of many examples of the different experience.

Class is a determiner of the type of fraud, and the type of fraud determines the auditing procedure.

Working class people commit fraud related to EITC, child tax credit, American opportunities tax credit, and medical expenses. Capital class tax fraud covers pensions, annuities, rents, fellowships, scholarships, royalties, business expenses, bad debt deduction, property, and capital gains.

Those who commit the first types of fraud get one treatment while those who commit the second types of fraud get another. The end result is that working class people get treated by the IRS in one way and capitalist class people get treated another.