A lesson from Trump taxes: An underfunded IRS is outmatched

WASHINGTON (AP) — Revelations of President Donald Trump’s near-zero federal income tax payments have underscored the ability of wealthy individuals with high-priced lawyers to outmatch an IRS that has long been understaffed and underfunded.

A result is that the IRS has tended to pursue taxpayers of modest means more aggressively than they have high-powered businesspeople, even though the wealthy are believed to be disproportionately to blame for depriving the government of tax revenue. The top 10% of earners have accounted for most of the revenue gap, experts say, by underreporting their liabilities, intentionally or not, as tax avoidance or outright evasion.

Just as the nation's economic inequality has widened, so, too, has the unequal treatment of taxpayers: Those with annual incomes under $25,000 are audited at a higher rate (0.69%) than those with incomes up to $500,000 (0.53%), according to the IRS data. Taxpayers who receive the earned-income tax credit, which serves mainly low-income workers with children, are audited at a higher rate than all but the very wealthiest tax filers.

As their staffing and investigative resources have diminished, so have the IRS's overall audits — including of affluent taxpayers. A key reason is that for the past decade, lawmakers in Congress have steadily reduced funding for the agency. Critics say the big winners have been people with the financial resources to keep the IRS at bay.

“These very, very wealthy people like Donald Trump are able to run circles around the IRS because the IRS is understaffed and under-resourced right now,” said Steve Wamhoff, director of federal tax policy at the left-leaning Institute on Taxation and Economic Policy.

Buttressed by his accountants and lawyers, Trump has fought for a decade with IRS auditors over a roughly $73 million refund he...