Political Cortex: Brain Food for the Body Politic

Criminal investigators at the Internal Revenue Service froze more than 120,000 taxpayers' refunds last year on suspicion of fraud without notifying the taxpayers or giving them a chance to respond, the national taxpayer advocate said in a report released yesterday.

The advocate's office, which is part of the IRS, looked at a sample of taxpayers who complained that they never received their refunds. In two-thirds of those cases, there was no evidence of fraud.  Many of the returns were filed by low-income workers, including some who claimed the earned-income tax credit, which sometimes entitles filers to a cash payment on top of their refunds [emphasis added].

These targeted taxpayers had a median income of $12,000-$14,000.

The median Earned Income Credit (EIC) claimed was about $3,700, but not all 120,000 taxpayers claimed an EIC.  Even if they all had, the total loss to the U.S. Treasury would have been less than half a billion dollars.

Compare that to the more than $30 billion that several-thousand more affluent taxpayers withheld from the Treasury through illegal shelters.  Those taxpayers were mostly wealthy individuals, large corporations and small businesses.

While 120,000 poor taxpayers were denied refunds [without notice and an opportunity to respond], the IRS gave some 4,000 wealthier tax dodgers a "quick, quiet, and cost effective" sweetheart deal : they could settle allegations of misconduct-- without jail time, huge penalities or frozen assets--by filing papers before Jan 23, 2006.

Coincidentally, a suit was filed last week after the IRS refused to release records to a researcher showing how thoroughly the agency audits big corps/wealthy individuals and how much it discounts their taxes after the audits.

Cross posted at Dailykos.