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The Wealthy Getting Less Scrutiny On Taxes

ARI SHAPIRO, HOST:

A teacher, a small-business owner and a retiree who complained they paid more in federal income taxes than President Trump are now gracing campaign billboards in swing states around the country. The ads follow reporting by The New York Times that Trump paid little or no federal income tax in most of the last 20 years. Trump has denied that report, but as NPR's Scott Horsley reports, the wealthy are getting less scrutiny from the tax collector with each passing year.

SCOTT HORSLEY, BYLINE: Four years ago, a Beverly Hills tax lawyer named Charles Rettig wrote a column for Forbes magazine defending then-candidate Donald Trump's norm-busting decision not to release his tax returns. Today, Rettig runs the IRS. And while he's refused to give Congress access to the president's tax records, Rettig insists his agency is not turning a blind eye to rich people who pay little or nothing in taxes.

(SOUNDBITE OF ARCHIVED RECORDING)

CHARLES RETTIG: Absolutely false. For taxpayers who have more than $10 million in total positive income per year, we audit at the rate of 8.16%.

HORSLEY: The IRS was doing that - four years ago. But since then, the agency's own records show the odds of a wealthy person like Trump getting audited have dropped with each passing year. At the same time, the IRS still has taxpayers like William Ayers in its sights. Ayers makes about $30,000 a year upholstering furniture at a La-Z-Boy factory in Mississippi. Two years ago, he got a letter from the IRS saying he owed almost $9,800 in back taxes. It wasn't the first time.

WILLIAM AYERS: I've been audited at least three times. I guess I'm just a casualty of being Black and poor.

HORSLEY: With the help of a legal-aid attorney, Ayers was able to get the tax bill dismissed, and he even got a small refund. But a lot of his friends and co-workers have not been so lucky.

AYERS: Everybody said, well, when the IRS come for you, you might as well pay them 'cause they're going to get their money. But I'm like, how do I know six, seven, eight, nine people who's been audited by the IRS if only 1% of the population is being audited?

HORSLEY: The IRS is particularly aggressive about auditing people who claim the earned income tax credit. While that tax break for working families has been plagued by reporting problems, the IRS says it accounts for just 6% of all unpaid taxes. Nevertheless, people claiming the credit were more than 10 times as likely to be audited last year as multimillionaires.

Over the last decade, the IRS enforcement budget has been cut by 25%. Democratic Congressman John Sarbanes says that's made it harder for the agency to keep tabs on wealthy people who try to avoid paying taxes.

(SOUNDBITE OF ARCHIVED RECORDING)

JOHN SARBANES: The rich get richer. High-end tax cheats get away with not paying their taxes. Meanwhile, those average Americans out there who play by the rules - they're the ones that are getting short shrift here.

HORSLEY: University of Pennsylvania law professor Natasha Sarin says it's hard for ordinary wage-earners to cheat the government because their taxes are automatically deducted from their paychecks. Rich people, on the other hand, have more ways to hide their income and lowball their tax bill.

NATASHA SARIN: There are one set of rules for regular people, and then there's a second set for those who are wealthy and accrue income in more opaque ways. You have the opportunity to skirt what you owe.

HORSLEY: When the rich are challenged by the tax collector, Sarin says they often fight back with an army of high-priced lawyers and accountants.

SARIN: In that sort of David and Goliath kind of battle, the IRS as it stands is just outmatched.

HORSLEY: No surprise, then, as its budget has declined, the IRS has steadily reduced the attention it pays to taxpayers making more than $10 million a year. A decade ago, nearly 1 in 4 of those ultrarich taxpayers was audited. By 2017, that rate had dropped to 1 in 38. Even President Trump has now proposed boosting the IRS budget. Tony Reardon, who heads the union representing IRS workers, says every additional dollar spent on enforcement would boost tax collections by at least $3.

TONY REARDON: It's not just about collecting more revenue. It's also about making sure the American people believe the IRS is enforcing the tax code fairly.

HORSLEY: In that Forbes column four years ago, the future IRS commissioner agreed wealthy taxpayers should face more scrutiny not because of politics, Rettig wrote, but because that's where the money is.

Scott Horsley, NPR News, Washington.

(SOUNDBITE OF COLLEGE'S "UN LONG SOMMEIL") Transcript provided by NPR, Copyright NPR.