IRS audited 69% of filers claiming adoption tax credit
posted at 8:01 am on May 23, 2013 by Ed Morrissey
Mary Katharine linked this yesterday in her post on Rep. Stephen Lynch’s unmistakable anger over the corruption at the IRS, but it’s worth a long look on its own, too. National Review’s David French, an adoptive father himself (as am I), researched a few other IRS priorities over the past few years other than targeting conservatives for extra scrutiny and harassment. The agency took very clear aim at people claiming the adoption tax credit, auditing a jaw-dropping 69% of all such filers:
As we get word that the IRS has harassed a number of pro-life groups, including at least one alleged demand that a pro-life group not picket Planned Parenthood, check out this statistic: In 2012, the IRS requested additional information from 90 percent of returns claiming the adoption tax credit and went on to actually audit 69 percent. More details from the Taxpayer Advocate Service:
During the 2012 filing season, 90 percent of returns claiming the refundable adoption credit were subject to additional review to determine if an examination was necessary. The most common reasons were income and a lack of documentation.
■ Sixty-nine percent of all adoption credit claims during the 2012 filing season were selected for audit.
■ Of the completed adoption tax credit audits, over 55 percent ended with no change in the tax owed or refund due in fiscal year 2012. The median refund amount involved in these audits is over $15,000 and the median adjusted gross income (AGI) of the taxpayers involved is about 64,000. The average adoption credit correspondence audit currently takes 126 days, causing a lengthy delay for taxpayers waiting for refunds.
Did a special risk exist in the claiming of this tax credit? Are adoptive families that much more dishonest than the average filers, in the experience of the IRS? As it turns out …. no. Even with the massive amount of scrutiny applied to these filings — delaying final acceptance of the returns for more than four months, on average — only 1.5% of the claims were disallowed.
That allowed the IRS to drag back about $11 million in credits, out of $668.1 million claimed in the year, for a success rate of 1.5% after an audit rate of 69%. Bear in mind, please, that the federal government brought in $1.375 trillion in income-tax revenue in 2012, which means that the agency audited 69% of filers on credits amount to what turned out to be 0.0486% of total IRS revenue that year. I’m not even sure we can calculate what percentage of overall revenue was restored in this effort (~0.0008%). We can, however, calculate that it cost taxpayers over $2 million in interest when legitimate claims were finally paid after long delays. How much did all of the auditing activity cost the IRS? I’m sure the final figure is in the millions.
Now, what could possibly be the rationale for a 69% audit rate on credits amounting to 0.0486% of tax revenue? It’s not that adoptive families are predominately wealthy; TAS notes that 45% of these families were at 200% of the poverty level or below, and had already endured an expensive, lengthy process to complete their adoptions. Either the IRS is terribly incompetent at prioritization, or the organization has a bias against adoption.
Either way, French is correct in his conclusion:
As an adoptive family, it’s sometimes difficult to describe the immense challenges in gathering paperwork, opening your lives to social workers for home studies, then expensive travel to sometimes-corrupt foreign locales to then launch a new life with a child you love immensely but who is also experiencing his or her own culture shock and adjustment. All of this places a great strain on family finances and emotions. To then face an audit on the other side? All so the IRS can collect a whopping 1 percent additional revenue? It’s beyond the pale. If the IRS is concerned about fraud, it can audit random samples, not the vast majority of adoptive families claiming the credit.
The IRS is a broken institution. Yet despite its moral and legal corruption, it still wields immense power. As Congress investigates wrongdoing, it’s past time to consider fundamental tax reform. In other words, starve the beast. It has proven it can’t be trusted with power.
As it has proven in its targeting of conservative political speech and its arrogance in Congressional hearings, too.