All Taxed Out
Well, I've done it. The check has been signed and sent, my bank account drained. Now all I have to do is wait for the auditors to show up.
Don't be silly, you're probably thinking. Auditing is for the rich. Why would the IRS come after me, a freelance writer who can't even afford to visit the Bahamas, let alone figure out how to squirrel away money there?
But according to a recent report in The New York Times, it is exactly people like me -- freelancers and small sole proprietors earning less than $25,000 (I know, sad isn't it?) -- that the IRS comes after with a vengeance. In fact, we're more than twice as likely to be audited than are people with business earnings totaling more than $100,000.
The biggest corporations in the country, those with $250 million or more in assets stand a one in three chance of being audited. I'm next on the list; my chances of being set upon by men in dark suits are one in 37. By contrast, that guy sporting Prada loafers, whose other car really is a Lexus (a member of the $100,000-plus club in other words) has only a one in 145 chance of coming home to find the IRS on his doorstep.
And pity the poor slobs who apply for the Earned Income Tax Credit, meant to be an income supplement for the working poor. "A tax credit usually means more money in your pocket," states the 2001 IRS tax guide. It also moves you straight to the top of the "to-be-audited" list. One out of every 47 people who applied for the credit will win the booby prize this year.
To make sure that the minimum wage crowd's claims of poverty are honest, The IRS employs a small army of investigators -- 2,200 of them, in fact. These wage watchers spend their days checking report cards to verify the existence of kids listed as exemptions, and comparing official records to the humble entries on tax returns.
The irony here, of course, is that it's no easy task for those of us on the low end of the wage scale to cheat on our taxes. If there are loopholes, havens and shelters hiding out in my 1040 EZ form, I'm certainly not aware of them. And if one were tempted to fudge just a little, by perhaps failing to mention a certain 1099, well good luck! Chances are the IRS already knows all about it. They know how much we make -- our employers are required to pass on detailed information about our wages -- even how much interest we earn on our pitiful passbook savings accounts.
By now you must be wondering how exactly the IRS does it all. How can they keep up this level of scrutiny on the working poor, lowly freelancers and sole proprietors, while also going after tax cheats at the top of the scale, the same ones who cost the government tens of billions every year? The answer: they don't. The wealthiest 5 percent of Americans simply aren't subjected to the same standard of scrutiny that the IRS lavishes on you and me. Their earnings, often from investments, rents, and partnerships, aren't reported to the government. The champagne set is simply trusted to tell the truth about how much they make.
There is another irony here as well. Not only is the IRS wasting time and resources on honest taxpayers, but we're also far less likely to complain about the burden of paying taxes than our gated community counterparts. Think about it. How often do you hear lowly wage earners -- as opposed to Steve Forbes -- bemoaning the fact that we're obligated to pay taxes? The same people who are rich and savvy enough to weasel out of writing a check on April 15 are also the most likely to denounce the system as onerous, unfair and even unjust. They're right, of course; they've just got it the wrong way around. It is unfair that the IRS targets the folks on the bottom, while giving the rich a pass.
In the meantime, I'm gearing up for my audit. I can picture it now: the team of investigators will arrive, armed with documents, hyper-alert to signs of off-balance accounting, reverse prepay schemes, and cash stashed in the Caribbean. "I'm detecting some signs of shredding," Agent 200439 will report to Agents 54983 and 97634, paying close attention to my tax preparation area, a nightstand that doubles as a cosmetics storage center.
"There wasn't any shredding," I'll respond, honest as always. "I'm just really messy."
Jennifer C. Berkshire is a freelance writer and taxpayer based in Boston.