Refunds Frozen by IRS

We’ve all heard the horror stories, and now we have even more reason to mistrust this arcane system. The New York Times has a piece that covers the Tax Advocate, Nina Olson, and her staff presenting a report to congress. The report lays out the truth behind refunds frozen by the IRS due to questionable returns being filed.

Most people who were flagged were seeking the earned income credit. These are poor people, those with an income average of less than $13000 a year. They were the targets. These targets are mostly single parents and married couples with children. Another large portion consists of people trying to get off welfare by finding their own income. In many cases, the IRS was ordered to provide no hint of the return’s questionability when the refund was frozen.

Now, here’s the most relevant issue behind this whole shenanigans:

Ms. Olson said the I.R.S. devoted vastly more resources to pursing questionable refunds by the poor, which she said cannot involve more than $9 billion, than to a $100 billion problem with unreported incomes from small businesses that deal only in cash, many of which do not even file tax returns.

One of my mentors once told me that you “pick your lowest hanging apples first”… meaning you pick your most easily accessible bounty of fruit, and once that’s done then you can work on the rest of it. I think we could be more fruitful by focusing on that $100 billion instead of the $9 billion.