Studies Show Rich Cheat More on Taxes

photo credit: Here in Van Nuys

A recent study based on unpublished Internal Revenue Service (IRS) statists shows that the rich ($200,000+ annual income) cheat more on their taxes than any other income group. How do they do it? Simple: they understate their adjusted gross incomes by an average 21 percent, 13 percent more than those with incomes between $50,000 and $100,000 annually.

The study, which has not yet been officially endorsed by the IRS, was written by Joel Slemrod, an economy professor at the University of Michigan, and Andrew Johns, an IRS economist. The study reviewed 45,000 individual 2001 tax returns, and was the first such IRS study since 1988.

The study also found that the rich cheat more because a higher percentage of their income comes from sources easier to hide. Among these, self-employment, rental income, S corporations and capital gains. In fact, the IRS estimated that individuals underreported incomes by a whopping 43 percent in 2001, which adds up to a significant loss in federal tax income.

Of course, this doesn’t mean that the rich get away with cheating. The IRS has collected billions in back taxes over the years, and the biggest offenders are often slapped with extra fines and even jail time. If you ask me, that’s a hefty risk to run.