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    A disturbing look at how easy it is for the rich to dodge their taxes

    David Cay Johnston, DCReport @ RawStory
    February 04, 2021

    Thanks for your support!

    This article was paid for by reader donations to Raw Story Investigates.

    Underscoring 'grotesque nature of unequal sacrifice,' richest Americans have added $434 billion in wealth since pandemic hit
    Wealthy friends sip champagne on a yacht (Shutterstock)

    This article was paid for by Raw Story subscribers. Not a subscriber? Try us and go ad-free for $1. Prefer to give a one-time tip? Click here.

    David Cay Johnston, DCReport @ RawStory

    The rich aren't like you and me, at least not when it comes to being taxed. Thanks to Congress, the U.S. has two income tax systems, separate and unequal. One is for workers. The other is for business owners with extra favors for real estate investors.

    Last week we examined one aspect of federal tax unfairness, how earning today and then delaying payment of taxes for decades converts the burden of the federal income tax into a profit center.

    This week we'll look at another aspect of unfairness – unverified income.

    Congress doesn't trust you and others who labor, whether as ditch diggers or CEOs. Congress requires your employer to tell the IRS exactly how much you are paid and to withhold your income, Social Security and Medicare taxes before you get the money you earned. Your bank reports interest earnings of more than $10 per year. Your mutual fund or stockbroker do the same for dividends and capital gains.

    The opportunities to cheat are especially easy and hard to detect for those in real estate, especially on an international scale. If Donald Trump comes to mind you've got the picture.

    Business owners are an entirely different story. Congress trusts them.

    Instead of verifying their incomes and withholding taxes upfront, Congress trusts these Americans to scrupulously tell the Internal Revenue Service about every dollar they earn. And it doesn't require them to pay their taxes upfront, either, although there are some rules on paying taxes every 90 days, rules easily skirted by those business owners who also draw a salary, or have a spouse who does, or who report less than their actual income.

    You're Scrutinized, Your Boss Isn't

    If workers underreport their income the IRS knows. It just compares what's on your tax return to the W-2 your employer sent to our government. So too for the 46 states with income taxes, all of which share information with the IRS.

    But a business owner runs only a small risk of detection for underreporting. And the opportunities to cheat are especially easy and hard to detect for those in real estate, especially on an international scale. If Donald Trump comes to mind you've got the picture.

    Tax cheating in real estate is easy because, unlike the way paychecks are reported, there is no national computer system that gathers up real estate information and notifies the IRS. Investigations into real estate tax dodges are rare. There are records of real estate sales, but matching them to tax returns is an arduous process, unlike the automated system for wages, interest, dividends and in recent years stock market capital gains.

    Properties for Money Laundering

    Five years ago in Newsweek, I was the first journalist to show that around the world wealthy people were parking money in apartments, many of which came with special deals so little property tax was due. Buying apartments is a smart way to hide and launder money, whether in New York, San Francisco, Melbourne, Singapore or Paris. And the risk that income tax authorities will poke into your affairs? About the same as the sun rising in the West tomorrow.

    A similar issue arises with the art and collectibles markets. For years, prices have been rising much faster than inflation or the global economy. A big reason is that these markets are unregulated and records are skimpy. That makes them near perfect for evading taxes, money laundering and hiding wealth. That's the premise of Riviera, the artsy Amazon Prime dramatic series starring Julia Stiles.

    Much of the art and collectibles from Old Masters to Rauschenbergs and Bugattis to 17th Century Stradivarius violins are stored in massive underground vaults in the U.S., Switzerland, Singapore and other jurisdictions known for being friendly to tax cheats. No one is enjoying these creations, but you are paying to keep them in dark, air-conditioned rooms by bearing the taxes the owners evade.

    IRS Barred from Investigating

    Congress has taken steps to make sure people who use the art, collectible cars and real estate to launder money and take untaxed profits won't get pinched by our tax police. Congress took away much of the authority IRS agents had to investigate people based on obvious discrepancies between the income on their tax return and their lifestyle.

    Years ago a just-retired IRS agent told me a story about the value of such audits. While training a recruit they were randomly assigned to inspect the books of a Manhattan diner. Everything appeared to be in order. The man's modest income on his tax return pretty much matched his business records.

    But as the agents walked out they noticed a flashy European car pull up. A woman in a sable coat and diamonds got out, walked past them into the diner and embraced the owner. The agent took down the license plate and started digging, turning up a mansion in the suburbs, a yacht and other signs of a lifestyle that cost many multiples of the reported income.

    'Thanks, Sen. Roth!'

    Today that agent would probably be stopped. Why? Because of the IRS Restructuring and Reform Act of 1998. While Congress didn't outright ban so-called "lifestyle audits," it did make such inquiries difficult to justify so they have largely faded away.

    Audits began fading after Ronald Reagan left office, and the trend accelerated after 1997 and 1998 hearings by Sen. William V. Roth Jr. (R-Del.) investigating supposedly zealous IRS agents who harassed decent taxpayers. The stories the witnesses told were horrific. The testimony was also one-sided because Roth, best known as the father of the tax-free Roth IRA, knew that by law the IRS could not respond. The TV networks, big newspapers and magazines all lapped it up.

    After the hearings, Tax Notes Magazine, The Virginian-Pilot newspaper, The Wall Street Journal and I in The New York Times showed that the testimony was self-serving nonsense that bore little resemblance to the facts. That didn't make the networks, magazines or much else.

    That 1998 law should really be called the Tax Cheats Relief Act of 1998.

    Tax Gold in Real Estate

    There are obvious ways that penny-ante operators chisel on their taxes. There are mom-and-pop retailers who don't ring up every cash sale on the cash register, for example.

    But the big tax money is in real estate.

    I have held in my hands papers showing the transfer of roughly a billion dollars worth of real estate from one generation of a family to the next between 10 AM and 2 PM on a single day. The parents acquired the property in the 1950s so huge capital gains are built in. The tax upon sale would easily be north of $100 million.

    If the property was a gift to descendants then gift tax would be owed, also north of $100 million.

    I saw proof that the IRS knows that neither tax was paid. But the service has done nothing to enforce the law against the parents, who possibly were valuable intelligence assets during the Cold War.

    This failure to enforce the law is as much a scandal as the IRS dropping its criminal investigation into at least $100 million of untaxed annual income flowing to one of the Koch brothers, as DCReport revealed in 2019.

    Audit Poor People Instead

    What the IRS has done, as directed by Congress, is intensify audits of the poor. One in three households with income of less than $25,000 is audited at nine times the rate for the 24,300 households making $10 million, as DCReport showed in October.

    For the rich real estate family, there is even better news than super-low audit rates.

    Congress, in a further sign that while it doesn't trust workers it does trust business owners, put in place a rule requiring the IRS to challenge any transfers of property within three years. If the IRS doesn't audit within that tight window of time then the gift tax return is accepted as filed even if our government was shorted $100 million.

    This short time limit is absurd and undemocratic because an IRS study early in this century found that undervaluing gifted real estate is endemic. In some states, every large gift tax return audited showed significantly undervalued property.

    In contrast, the working poor get a harsh deal. If the IRS determines that they made a simple math error they can be barred for two years from the Earned Income Tax Credit, America's major program to help impoverished children. If something worse is found the bar can last a decade.

    Double Standards

    That's two standards of justice separate and unequal, one is for rich real estate families, the other for the families who cut the grass and take out the trash in their buildings. But don't expect a 14thAmendment challenge in court to succeed. That's because our Constitution gives Congress virtually free reign to tax. Indeed, tax lawyers refer to tax favors as almost religious in nature—"given by the grace of Congress."

    Audits of business owners are slowly fading away. In the last two decades, Congress has pared, trimmed and ultimately slashed the IRS budget for tax law enforcement. When economic and population growth and inflation are taken into account the IRS has been cut in half since the turn of the century.

    The rate of audits is down and so is the amount of time spent on audits. Years ago some IRS wags saw this trend building and came up with a metaphor to the marketing of watery low-calorie beer. They started referring to the IRS policy of "audit lite."

    That term may need updating. Unless the IRS gets a bigger budget and unless Congress stops some of these unwarranted favors for rich tax evaders, tax cheats who own their business, invest in real estate or traffic in art can look forward to a future that's audit free.

    This article was paid for by Raw Story subscribers. Not a subscriber? Try us and go ad-free for $1. Prefer to give a one-time tip? Click here.

    Enjoy good journalism?

    … then let us make a small request. The COVID crisis has slashed advertising rates, and we need your help. Like you, we here at Raw Story believe in the power of progressive journalism. Raw Story readers power David Cay Johnston’s DCReport, which we've expanded to keep watch in Washington. We’ve exposed billionaire tax evasion and uncovered White House efforts to poison our water. We’ve revealed financial scams that prey on veterans, and legal efforts to harm workers exploited by abusive bosses. And unlike other news outlets, we’ve decided to make our original content free. But we need your support to do what we do.

    Raw Story is independent. Unhinged from corporate overlords, we fight to ensure no one is forgotten.

    We need your support in this difficult time. Every reader contribution, whatever the amount, makes a tremendous difference. Invest with us. Make a one-time contribution to Raw Story Investigates, or click here to become a subscriber. Thank you. Click to donate by check.

    Value Raw Story?

    … then let us make a small request. The COVID crisis has slashed advertising rates, and we need your help. Like you, we believe in the power of progressive journalism — and we’re investing in investigative reporting as other publications give it the ax. Raw Story readers power David Cay Johnston’s DCReport, which we've expanded to keep watch in Washington. We’ve exposed billionaire tax evasion and uncovered White House efforts to poison our water. We’ve revealed financial scams that prey on veterans, and efforts to harm workers exploited by abusive bosses. We need your support to do what we do.

    Raw Story is independent. You won’t find mainstream media bias here. Every reader contribution, whatever the amount, makes a tremendous difference. Invest with us in the future. Make a one-time contribution to Raw Story Investigates, or click here to become a subscriber. Thank you.

    Report typos and corrections to: corrections@rawstory.com.
    READ COMMENTS - JOIN THE DISCUSSION

    Do you approve of Biden's presidency so far?

    WATCH: Matt Gaetz’s Potato Head joke flops at CPAC

    Bob Brigham
    February 26, 2021

    Rep. Matt Gaetz (R-FL) pushed the culture wars during his Friday address to the Conservative Political Action Conference (CPAC) in Orlando, Florida.

    As Gaetz took the stage, he made a joke about not receiving such a warm welcome since he traveled to Wyoming to campaign against Rep. Liz Cheney (R-WY) after she voted to impeach Donald Trump for inciting the fatal January 6th insurrection at the U.S. Capitol.

    He then complained about the backlash the Republicans have been receiving since the majority of the party joined with the insurrectionists and voted to overturn the 2020 election.

    "Many Fortune 100 companies will not donate to pro-Trump Republicans," he complained. "Some have even pulled their sponsorships of this conference. American business should be worried about business, not wokeism."

    He then complained about cancel culture.

    "Look out, Mr. Potato Head, you're next. "I'm sorry, I think now he's going by Potato-x. Can't be Mr. Potato Head -- see to me, the whole concept of the Mr. Potato Head was you could move the parts around, I mean, Mr. Potato Head was America's first transgender doll and even he got canceled," Gaetz said to a smattering of polite applause.

    Watch:

    2 26 2021 14 05 58 www.youtube.com

    Ted Cruz flayed for mocking AOC for fearing for her life – after she raised $5 million for Texas storm victims

    David Badash, The New Civil Rights Movement
    February 26, 2021

    U.S. Senator Ted Cruz (R-TX) delivered what many are calling "unhinged" remarks at CPAC, the Conservative Political Action Conference, Friday.

    During his speech he once again appeared to try to incite an insurrection, attacked President Joe Biden, screamed for over a minute, closed his speech by yelling at the top of his lungs, "Freedom!" and mocked U.S. Rep. Alexandria Ocasio-Cortez (D-NY) who raised over $5 million for Texas storm victims – Cruz's constituents who literally struggled to stay alive in sub-freezing temperates for days without power or water while he vacationed in Cancun.

    Cruz name-checked William Wallace, who was portrayed by Mel Gibson in the film "Braveheart." Wallace was a leader in the First War of Scottish Independence, and was put to death for treason. Gibson's character been described as a "nationalist guerrilla leader" in the film, so it's unclear why Cruz would be promoting him, given America faced an attempted coup last month.

    “There is a natural pendulum to politics and the country will come back to sanity and mark my words, 2022 is going to be a fantastic election year, and so is 2024, as we stand together and defend liberty, defend the Constitution, defend the Bill of Rights of every American. In the immortal words of William Wallace, 'Freedom!'" Cruz screamed.

    But before he got to that point, Cruz mocked Congresswoman Ocasio-Cortez.

    Republican Tim Miller, who worked with Republicans Voting Against Trump and appears frequently on MSNBC, put it this way:

    First CPAC mention of the domestic terrorist attack on the capitol comes from Ted Cruz.
    He makes fun of AOC for being scared. — Tim Miller (@Timodc) February 26, 2021

    CNN's Jake Tapper weighed in:

    "AOC is telling us she was murdered," Cruz "jokes" to the CPAC crowd
    This was 3 days after saying people shouldn't "be assholes" (a reference to alleged friends sharing texts w reporters about Cruz family going to Cancun during the deadly storm in Texas).... 1/ https://t.co/FFpu1CzCE8 — Jake Tapper (@jaketapper) February 26, 2021

    Democrats "control the White House," and "they control every executive branch, where they control both houses of Congress," Cruz screeched. "Bernie is wearing mittens. AOC is telling us she was 'murdered,'" he says, mocking her for accusing him of almost having her murdered because he helped to incite the insurrection.

    "And the media, desperately, desperately, desperately wants to see a republican Civil War. Liberty is under assault and what are we gonna do? I'll tell you. We will fight. Liberty," he says, once again appearing to push for insurrection.

    Watch:

    Ted Cruz made fun of @AOC for being scared during the Capitol attack that he helped to incite. #CPAC pic.twitter.com/bspJ9Ndjpo
    — Sarah Reese Jones (@PoliticusSarah) February 26, 2021

    Here's how people are responding:

    NARRATOR: "@AOC raised over $5,000,000 to help the people in @tedcruz's state without power, food, and/or water, the same people Ted Cruz had blithely abandoned to lollygag by the pool at a foreign, luxury resort." #BadStandupRoutines https://t.co/Wyahstsi9U
    — Mrs. Betty Bowers (@BettyBowers) February 26, 2021
    AOC raised $5M for Texas winter storm relief. She is a congresswoman from New York. Cruz left town. He should keep his pie hole closed. https://t.co/keOwfp46UA
    — Lloyd Andrews (@Thunderballs2) February 26, 2021
    @tedcruz Cruz...You find what you said about AOC and Bernie funny?. You a low down, dirty, nasty, foul, and vile. It is people like you who should be put out of office. That is the White Supremacy in you. Dont worry, Democrats will continue to prevail before and after you.
    — Kenneth Stanback (@StanbackKenneth) February 26, 2021
    Honestly, no one listens to Ted Cruz. He has zero integrity, so we just consider the source. AOC has my thanks.
    — Lyn Rising 🌊💙🖤🌊 (@LynStrange) February 26, 2021
    Cruz hides his failure as a human by making fun or insulting others. Bottom line: he left the people of Texas to freeze and AOC raised millions to help them.
    — Esther Fusco (@fusco_esther) February 26, 2021

    Crutch-wielding Texas actor arrested for assaulting police at pro-Trump Capitol riot

    Sky Palma
    February 26, 2021

    An actor from Dallas, Texas, who stormed the Capitol on Jan. 6 and was captured on video holding a crutch as insurrectionists climbed the stairs to the Capitol building, has been arrested according to the Dallas Morning News.

    Luke Russell Coffee, 41, has an online biography that says he worked on two primetime television shows for Warner Brothers and NBC/Universal and started a production company in his hometown in 2010.

    He has been charged with assault of a federal law enforcement officer with a dangerous weapon; interference with a law enforcement officer during civil disorder; obstruction of an official proceeding; unlawful entry on restricted grounds; and disorderly conduct on Capitol grounds, the Morning News reports.

    A college classmate of Coffee's, who also happens to be an FBI agent, helped identify him. Another witnesses told the FBI that they saw video featuring Coffee discussing conspiracy theories.

    Coffee admitted to police that he was at the Capitol on Jan 6. and that he was holding a crutch but denies he used it to assault anyone.

    Watch video of Coffee at the Capitol below. He appears at around 0:36:


     
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