The taxosphere is abuzz with talk about the idea of compensating taxpayers who are audited by the IRS.
Here are what two of my favorite tax bloggers have to say about the subject.
VITA tax preparer and economist Mary O’Keeffe from the splendid Bed Buffaloes in your tax code blog, in addition to having the unmitigated brass to suggest that I might be wrong, says:
Economists have been talking about the idea of compensating audited taxpayers who are found to be fully compliant for their time and trouble for decades, probably since before you were born. I first encountered the idea in the 1970s, and it was not a new idea even then. I will admit to some mixed feelings about the idea, but I don’t think you have to be “smoking something” to think it’s an idea that deserves some consideration.Paying audited taxpayers is clearly a controversial idea, and I’m not saying I’m ready to jump on the bandwagon, but I do think it’s an idea that merits serious consideration. Your arguments, based on your extensive experience dealing with IRS auditors, are certainly worth taking into consideration, as well.
Mary says that one does not necessarily have to be “smoking something” to think that paying taxpayers for audits might be a good idea.
No, but it helps.
And the often provocative, always intelligent, Professor Linda Beale of ataxingmatter says:
This is nuts. My list of reasons could be quite long. I’ll stick to just a few.1) Almost 90% of the population thinks that we should comply with the tax laws. If you start paying taxpayers to undergo audits, it is quite likely to have the opposite effect–can’t you see the right-wing anti-tax nuts running ads that say things like “the government these days has to PAY people to undergo an audit–shows what a mess the tax system is” or “when the government pays taxpayers to be audited, it must mean that they know the audit is an unfair burden for anyone to bear”?2) If the IRS pays to audit, it will want to make that payment pay off. Audits under this regimen would likely be harsher, and cause more taxpayer antipathy, rather than easing concerns. (This is similar to a comment by Peter Pappas on tax prof.)3) We know that audits are a useful enforcement tool, so we should fund the IRS sufficiently to permit it to enforce the law appropriately. Paying taxpayers just distracts from the underlying issue–the fact that the number of audits has declined markedly over the last few decades, and the intensity of the audits has as well, as more audits are conducted as “paper” audits that don’t reveal as much.4) Although most taxpayers are compliant, there are, we know, a number of really big tax cheats–like the people that hid money overseas, or the Wesley Snipes actalikes that just stop filing tax returns. We shouldn’t be paying those cheats to undergo audits. The typical honest taxpayer’s anger will necessarily rise–sort of like the bailouts for the banks, followed by the ridiculous bonuses partly funded–no matter how you cut it–out of taxpayer dollars. People just don’t like that happening.
Observation: Compensating audited taxpayers would be a boon to us tax professionals. But as I have said many times before the IRS pays only lip service to taxpayers’ theoretical right to representation. In practice it does everything it can to prevent such representation. For this reason I fully expect the IRS to oppose any plan to compensate audited taxpayers because such a plan will doubtlessly result in more taxpayers hiring tax professionals to handle their audits for them.
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