This is absurd. Via Raven’s Eye, Danny Westneat at the Seattle Times has uncovered a case in which the IRS audited a single mother with two kids, who earns $10 an hour at Supercuts and lives with her parents. What was their reason for doing so? Random selection? An incorrectly completed return? No, they just thought that she was too poor to be telling the truth:
“I asked the IRS lady straight upfront — ‘I don’t have anything, why are you auditing me?’ ” Porcaro recalled. “I said, ‘Why me, when I don’t own a home, a business, a car?’ ”
The answer stunned both Porcaro and the private tax specialist her dad had gotten to help her.
“They showed us a spreadsheet of incomes in the Seattle area,” says Dante Driver, an accountant at Seattle’s G.A. Michael and Co. “The auditor said, ‘You made eighteen thousand, and our data show a family of three needs at least thirty-six thousand to get by in Seattle.”
“They thought she must have unreported income. That she was hiding something. Basically they were auditing her for not making enough money.”
Seriously? An estimated 60,000 people in Seattle live below the poverty line — meaning they make $11,000 or less for an individual or $22,000 for a family of four. Does the IRS red-flag them for scrutiny, simply because they’re poor?
The IRS must either think that the United States is just filled to the brim with liars, or that they receive an awful lot of tax returns for people who don’t exist. A whole lot of people in this country, not just in Seattle, live under the poverty line — even though the poverty line is actually placed ridiculously low. And more still live above the official poverty line while still being poor. It’s usually not pretty. It’s sure as hell not just. And often, those people need the help of friends and family to get by. But as they will tell you, it can be done — because, simply, it has to.
As Westneat points out, it’s not as though low-income people can’t commit tax fraud. But choosing them as audit subjects specifically because of their low income is incredibly classist, and far from cost effective. It can also be just plain cruel and vindictive, as it turned in Porcaro’s case:
She had a yearlong odyssey into the maw of the IRS. After being told she couldn’t survive in Seattle on so little, she was notified her returns for both 2006 and 2007 had been found “deficient.” She owed the government more than $16,000 — almost an entire year’s pay.
She couldn’t pay it. Her dad, Rob, has run a local painting business, Porcaro Power Painting, for 30 years. He asked his accountant, Driver, for help.
Rachel’s returns weren’t all that complicated. At issue, though, was that she and her two sons, ages 10 and 8, were all living at her parents’ house in Rainier Beach (she pays $400 a month rent). So the IRS concluded she wasn’t providing for her children and therefore couldn’t claim them as dependents.
She stood to lose what is called earned income tax credit, a refund targeted to help low-income workers. You qualify only if you’re working, as Rachel has been.
So, according to the IRS, parents living in intergenerational housing aren’t caring for their children. Further, while I don’t personally know anyone for whom $16,000 is not a huge sum, it’s an impossible and mind-boggling one for someone who earns $18,000 a year.
When Porcaro’s father’s accountant informed the IRS that they had been interpreting their own tax law wrong, they didn’t exactly back down — they instead launched an investigation against Porcaro’s parents. As one can imagine from the fact that such an investigation was conducted at all, that, too, got ugly:
They racked up $10,000 in accountant bills — $8,000 of which Driver is trying to recover from the IRS.
In the end, the parents were cleared. The IRS also backed off trying to reclaim Rachel’s earned income tax credit.
But the agency insisted Rachel couldn’t prove she was supporting her children — she didn’t have enough receipts — so she had to stop claiming them as dependents. A few weeks ago she paid back $1,438 (plus penalties and interest!) on that issue.
Way to go, IRS. You did an investigation likely costing tens of thousands of dollars (counting both sides). To squeeze a grand out of a single mom who did nothing wrong.
Now, for tax purposes, Porcaro’s children just don’t plain exist. She’s not supporting them. Her parents aren’t supporting them. Apparently these children don’t eat, wear clothes, incur medical bills, or sleep anywhere — except that they do, and the IRS just doesn’t give a shit.
There was no fraud here. Porcaro was and is supporting her children. She just so happened to be doing it under a very common living arrangement that the IRS doesn’t seem to like. No one was breaking the law by claiming her children as dependents twice. She filed her taxes honestly, and indeed probably paid extra money she didn’t have to ensure that they were done right. And after that she is still being penalized, both now and in the future.
And she’s hardly alone in her struggle:
Why did this happen? The IRS won’t say, but Congress has been fighting for years about the earned income tax credit for the working poor.
Republicans have called the credits “backdoor welfare” and tried to cancel them. When they controlled Congress, they ordered the IRS to ramp up audits of people who claim the credit.
In 2006, credit recipients such as Rachel were more than twice as likely to get audited as the rest of the 140 million individual tax filers.
The thing is, while I’m sure it doesn’t feel that way to her, Rachel Porcaro’s story probably has a comparably happy ending. A whole lot of single moms making $18,000 a year don’t have parents with accountants, not to mention $10,000 to pay now and try to get back later. And I dread to think of what the IRS does to those women’s lives.
Further, this absolutely is a women’s issue: women are disproportionately represented among the working poor, and single moms are even more over-represented (49% of working poor families are headed by single women). We’ve got a system that is undoubtedly classist, consequently sexist, and, since a greater percentage of people of color live in poverty as compared to whites, racist.
Porcaro’s story isn’t just scary and outrageous because of what was done to her — it’s also scary and outrageous because it reveals that there are a lot of stories like it that aren’t making the news.