Sam Pizzigati: Time to close the huge IRS audit gap that favors the rich

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Via OtherWords.org

BOSTON

In 2020, U.S. households annually making over $1 million faced fewer tax audits than households with incomes low enough to qualify for the Earned Income Tax Credit. That had never happened before.

In part, you can blame the Trump administration. But conservatives in Congress actually gave Trump his tax-cutting playbook, as a new Americans for Tax Fairness report makes clear.

Ever since 2010, these right-wing lawmakers have been squeezing the IRS budget, forcing the agency “to drastically pull back on auditing the ultra-wealthy.” Between 2010 and 2020, audits on millionaires dropped a whopping 92 percent.

The super rich have taken full advantage. Nearly a thousand taxpayers making over $1 million a year, Sen. Ron Wyden (D.-Ore.) points out, haven’t even bothered “to file tax returns over multiple recent years.”

Thanks to the Inflation Reduction Act President Biden signed, the IRS gained an $80 billion increase in funding last year. Wyden, who chairs the Senate Finance Committee, wants to see the IRS use that money to increase the audit rate on America’s richest.

But Republicans are pushing to chop IRS funding by $67 billion. That cut, Americans for Tax Fairness calculates, would leave the nation right back where the Trump gang left it: with millionaires getting audited less than 1 percent of the time.

We should be resisting those auditing cuts. And besides cracking down on tax cheats, we need to close the wide constellation of loopholes that help the richest Americans legally sidestep any significant tax bill.

One example? The abuse of nonprofit donations.

Most of us hear the word “nonprofit” and think of the Red Cross or some other familiar charity. These traditional charities fall under section 501(c)(3) of the U.S. tax code.

Other nonprofits — most notably those that come under the tax code’s 501(c)(4) — can engage in activities that have next to nothing to do with providing charitable services. They can own companies indefinitely, as Forbes details, and benefit private individuals. They can lobby lawmakers as much as they want and “get directly involved in politics.”

This flexibility that C4s offer became particularly attractive to America’s deepest pockets in 2015.

Lobbyists bankrolled by the billionaire Koch family wiggled into the tax law that year a charming little loophole that lets the rich take shares of stock they own that have appreciated handsomely and pass them to C4s — without having to pay either a gift tax or a capital-gains tax on the share transfer.

The C4s receiving these hefty gifts of shares, Forbes adds, “can then sell the stock, capital gains tax–free, or hold on to it indefinitely, reaping the dividends.”

Thanks to this loophole, note investigative journalists Judd Legum and Tesnim Zekeria, billionaires like Charles Koch can now use their allied C4s “to spend as much money as they want on political campaigns without disclosing their spending or paying taxes.”

Billionaires should be paying taxes like the rest of us to support schools, health care, and the like. Instead, this handy and inequitable loophole leaves billionaires with the wherewithal to buy still more private jets, trinkets, and mansions — and our democracy.

Blank political checks for billionaires like Charles Koch have no place in a country striving to become a more equal place. So let’s fund the IRS, close the loopholes, and conduct those audits. Now!

Sam Pizzigati, based in Boston, co-edits Inequality.org at the Institute for Policy Studies. His books include The Case for a Maximum Wage and The Rich Don’t Always Win.