IRS Reports Some High Income Taxpayers Pay No Tax

I came across an interesting Fiscal Times article titled: “High Income, No Taxes: How Big Money Beats the IRS“. The article highlights an IRS report written by economist Justin Bryan that provides comprehensive data on the number of taxpayers who make more than $200,000 and pay zero income taxes.

The report contains detailed data and summary data for the period 1977 to 2008 as well as charts and graphs of almost 4 million high-income returns (over $200,000) for 2009. The information shows that in 31 years, the number of high-income returns has risen dramatically. For example: in 1977: 53,403 taxpayers reported income over $200 thousand, while in $2008: nearly four million did.

The Tax Reform Act of 1976 requires the IRS to publish annually data on individual income tax returns that reporting income of $200,000 or more, the number of such returns reporting no income tax liability and the various tax provisions that make these returns nontaxable.

Here are the important statistics the article mentions:

  • About 4.5 million individual income-tax returns reporting adjusted gross income of $200,000 or more (about 3 percent of the 143 million tax returns filed for that year).
  • Of the “high-income” returns, 10,465 showed no U.S. income-tax liability, roughly one quarter of one percent of the group,  increased from 8,252 the previous year
  • As recently as 2004, there were only 2,833 high-income returns showing no tax liability.

Some Reasons for Nontaxability

According to the IRS report, it’s possible for certain itemized deductions and certain exclusions from income to cause nontaxability. However, it appears high-income returns are more often nontaxable as a result of a combination of reasons, some of which may include the following:

  • Partnerships or S Corporation losses; small businesses whose income and losses have ownership flow through.
  • Investments in nontaxable municipal bonds.
  • Very high medical or dental expenses.
  • Foreign tax credits and other types of credits
  • Large charitable donations
  • Casualty and theft losses
  • A combination of these factors and others.

Bryan’s article points out that the report does not include statistics on tax evaders who have not reported their worldwide income or assets or are underreporting their income. These tax problems across all income levels directly contribute to the $450 billion “tax gap” – the difference between taxes reported and taxes collected.

The information uncovered in this report about those earning $200,000 helps to support the argument for why IRS audits are up for the wealthy. Essentially, the government is broke and going after those who earn $200,000 or more to help fill in budget gaps; the more you earn, the greater the chances for a tax audit. Take a look at the following statistics:

  • If you earn $200,000 or more, your chances of an IRS audit are five times greater.
  • If you earn more than 1 million, your chances are 12.5 times greater that you will be audited (a 100% increase over 2009).

The IRS is the most aggressive collection agency on the planet. So, if you have received an IRS audit notice for yourself or your business or have avoided reporting offshore bank accounts, it’s time to contact a certified tax resolution specialist or tax attorney to help you determine what your options are, but act quickly – IRS penalties and interest increase significantly the more you wait.

More Tax Help, IRS News and Tax Relief Tips:

  1. IRS Holds Taxpayers Responsible – No Matter What
  2. Offshore Tax Evaders Get Preferred IRS Help
  3. IRS Loses Tax Shelter Case & Billion in Revenue
  4. The Importance of IRS Audit Procedures
  5. IRS Releases 2012 Data Book

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