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IRS still has way too much to sort through

It’s the day before the deadline to file your income taxes!

No it’s not — but we hope we’ve caught your attention.

The U.S. Internal Revenue Service (IRS) has made the right decision, pushing back this year’s tax-filing deadline to May 17 from the usual April 15 date.

We believe the deadline push-back is appropriate, not only because of the challenges that the COVID-19 pandemic has dumped on the shoulders of millions of Americans but also because of how adversely the health emergency has affected the federal tax agency.

In early March, the IRS still had not finished its 2019 workload and reportedly was trying to resolve numerous erroneously issued notices.

Pennsylvania taxpayers also received a reprieve from the state Department of Revenue on March 17, the same day that the IRS decision came forth. In its ruling, the state announced that the change was made because its tax-filing deadline is tied by law to the federal deadline.

Both filing-deadline changes don’t absolve taxpayers from the responsibility to watch for related announcements that might be forthcoming. There already has been one important one — that unemployed workers who were early filers this year likely won’t need to file amended returns related to a new federal tax exemption for the first $10,200 of 2020 unemployment benefits.

However, a formal announcement still has not been forthcoming.

All that said, there is troubling information all U.S. taxpayers deserve to know — information that should serve as a basis for them demanding substantive change.

That change should be a major expansion of the tax agency, if what IRS Commissioner Charles Rettig is saying is true. According to Rettig, each additional dollar spent on tax enforcement could yield $5 to $7 in revenue.

IRS audit rates and enforcement staffing have declined steadily for a decade amid budget cuts.

Now to the troubling information referenced earlier:

The Wall Street Journal reported on March 22 that IRS researchers and academic economists have determined that the top 1 percent of households fail to report about 21 percent of their income, with 6 percentage points of that due to sophisticated strategies that random audits don’t detect. The March 22 article went on to say that for the top 0.1 percent, unreported income might be nearly twice as large as conventional IRS methodologies would suggest.

According to the article, the strategies include offshore tax avoidance but, perhaps more so, avoidance built around partnerships and similar entities that have become increasingly difficult for tax authorities to untangle.

Such disclosures ought to be troubling to U.S. taxpayers who harbor great fear of consequences that might be forthcoming if they make even what can be described as minor honest errors in their income-tax filings.

The Journal referred to estimates that a beefed-up IRS, armed with more people and tougher rules requiring more reporting of financial information by businesses, could collect an additional $1 trillion over a decade without raising taxes.

Some Republicans have expressed openness to expanding the IRS budget; Democrats, who control both houses of Congress, need to become aggressive regarding that objective.

The lead non-government author of the tax-avoidance report — Daniel Reck of the London School of Economics — characterized the situation succinctly: “There is more revenue than you might have thought at the very top.”

There is certainly nothing wrong with the IRS pursuing the revenue that the federal treasury is due.

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