Tax Officials Detect Widespread Tax Fraud in U.S. Middle Class

December 9, 2009

Tax Officials Detect Widespread Tax Fraud in U.S. Middle Class

Mass Audits Planned

(Washington, D.C.) National Tax Officials believe they have detected a new & widespread tax avoidance scheme rampant among America’s middle-class. Perceived by some as ‘Case Zero’ of what may come to be viewed as one of the most incredible tax cases in U.S. history, the investigation of Rachel Porcaro, a single mother of two boys living in Seattle and working as a hairdresser, led agents deep into the seamy ‘shadow world’ of the American working middle-class.

Ms. Porcaro reported an annual income of $18,992 employed cutting hair at Supercuts. Merely by utilizing their Blackberrys as computing devices (referred to as ‘Kashkaris’ when used in that fashion), tax officials immediately noted a discrepancy between Ms. Porcaro’s reported income and their research that indicated she would require a minimum income of $36,000 in order to reside in Seattle with her sons. Officials promptly commenced an audit of Ms. Porcaro in order to ferret-out the unreported $17,008:

http://seattletimes.nwsource.com/html/dannywestneat/2010435946_danny06.html

While the year-long Porcaro investigation was underway, an internal memorandum obtained by Outside The (Cardboard) Box indicates officials subsequently determined that a shocking number of filers were living below the Deemed Minimum Income Threshold -DMIT (pronounced de-mitt). Outside The (Cardboard) Box was fortunate to be able to sit down with two unnamed, highly placed individuals - a Field Agent (FA) & a Tax Analyst (TA) - from the main tax office for a frank discussion of this unprecedented level of suspected fraud.

OTCB: I get the sense this is big. Is it?

TA: We’ve never seen anything like it. It’s enormous AND it’s increasing.

OTCB: Increasing?

TA: Oh yeah. Our year-over-year analysis showed a huge spike in returns flagged for U-DMIT (*Editor’s note: Under the Deemed Minimum Income Threshold). And spot-checks of quarterly filings show the rate is accelerating.

OTCB: To what do you attribute this?

TA: The only conclusion that we can reach is that it is a vast conspiracy, most likely promulgated on the Internet.

OTCB: Ms. Porcaro was allegedly flagged because she was U-DMIT. Could you talk about how you identify tax cheats?

FA: Well, we can’t go into too much detail lest we tip-off the cheats to our methods, but it’s really as simple as common sense. For example, I’m a working middle class person so we can use my expenses as something of a guideline for comparative purposes.

OTCB: Please continue.

FA: Ok. I’ll just list work-day expenses for starters. I get a 3 shot latte every morning at the Starbucks by my building. That’s about 5 bucks with tip. Taxis to and from work run me about $14. I usually grab lunch at the Au Bon Pain by my office which will run me about $8. Most days I meet the guys for a couple of beers after work - $20 or so. And I usually grab some takeout on the way home for about $12. Figure 200 workdays per year, after holidays, vacation days, personal days, sick days & leave days are backed-out. If my Kashkari is right, that works out to $11,800 annually before any other expenses. So if I’m that Seattle woman, I’ve only got about $7,000 left, based on her reported income, for such necessities as cable, satellite radio, grooming, wardrobe, opera tickets and the like.

OTCB: What about people who don’t go to Starbucks, take taxis or eat lunch at Au Bon Pain?

FA: Well, personally I’ve never really cared for Caribou but I’ll concede the point. It’s still five bucks for a triple latte though. And frankly, I don’t know why anyone would want to drive their own vehicle to work around here. But for discussion sake, I think we would need to add some amount to the taxi fare to account for the additional expense of parking, fuel, insurance, wear & tear and the time wasted in all of that. And what was the third?

OTCB: Au Bon Pain

FA: Right. I’d go somewhere else but there’s nothing decent by the office……But you’re not getting my point! We can nitpick here and there but we still haven’t considered the $3,000 a month rent expense on my apartment; my personal trainer; my Beemer lease and monthly parking; manscaping; and afternoon Starbucks breaks. All of these necessities add up!

TA: As my colleague here has incontrovertibly demonstrated to you, the numbers don’t lie. At the outset of the Porcaro case, the DMIT for a family of 3 in Seattle was $36,000. As we’ve improved our analysis, that number has risen. The DMIT for a family of 3 in Seattle is now $63,000. The DMIT for that same family if they move to Chicago is $92,000, and it’s $104,000 in New York City. If the Porcaro case were started today, the liability would be much higher. In any event, we’re reviewing returns of U-DMITs and expect to be launching another wave of audits shortly. The one exception is Detroit. The DMIT in Detroit has actually dropped to $8; however we’re reviewing the analysis as we think perhaps there was a glitch in the Kashkari we used to calculate the DMIT. Anecdotally, we got that one used from Treasury some months ago after someone departed. As I recall, that was the first Kashkari we received - and I still don’t know why we call them that - and results always seem way off……

OTCB: I take it then that you suspect anyone who reports less than the DMIT for their area is underreporting?

TA: Absolutely. There’s no other explanation.

OTCB: Could one explanation be that wage gains have not matched increases in costs?

TA: We’re not saying wages have matched cost increases. We’re saying they’ve exceeded the increases.

OTCB: What about the unemployed?

TA: That’s a great question. The so-called unemployed are the worst offenders as far as we’re concerned. We believe they are unemployed merely to avoid paying taxes. They pay virtually NO taxes. That is so terribly unfair to those citizens who avoid paying taxes legally. We actually have a proposal in Congressional subcommittee suggesting that poverty should be criminalized. We think that’s the kind of policy making that will get this country rolling again. In the meantime, we’re planning mass audits of U-DMITs to attempt to recapture some of that lost revenue. Our biggest challenge is auditing the homeless. That’s another strategy that these conspirators use to thwart or collection efforts. They reside in vehicles, cardboard boxes, doorways; all sorts of domiciles intended to impede our determination of their location and applicable DMIT .

OTCB: How do you calculate tax on zero income?

TA: We use the DMIT as the reported income – basically a number we make up by punching a few figures into our Kashkaris. And just a short, funny anecdote, we were running a calculation on a suspected U-DMIT with that buggy Kashkari and the tax liability that popped out was $700 Billion! HAHAHAHAHAHA! You should have seen the eyes bug-out on THAT guy! Anyways, we think the shirking of personal responsibility in our society has gone too far. We are now requiring citizens to be responsible for earning enough to match the DMIT for their location or we’ll tax them at that amount anyway. And there will be no complacency allowed; we will be escalating all DMITs quarterly untill we feel sufficient revenue is coming in.

OTCB: We’d like to thank you both for sitting down with us.

TA: My Pleasure

FA: No problem. And let those under-earners out there know that we’ve got them in our sights. We’re gunning for them…..and we WILL get them!

*Editor’s note: HR2012 (aka the “Jail The Poor” bill) is expected to make it out of Committee and go to the Floor for a vote shortly .