TAXES - Record numbers of wealthy avoid paying taxes

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Wealthy avoid paying taxes Record number of well-to-do Americans avoid taxes, IRS finds By John D. McKinnon THE WALL STREET JOURNAL

WASHINGTON, March 30 — The Internal Revenue Service says record numbers of wealthy Americans are avoiding paying federal taxes.

ACCORDING TO AN IRS report to be issued Friday, the number of tax returns showing adjusted incomes of more than $200,000 and no tax liability reached 1,467 in 1998, the highest number since the agency began keeping the statistic in 1977.

The previous high of 1,253 was reached in the 1991 tax year. Nevertheless, the percentage of well-to-do Americans paying no tax was basically flat as the number of wealthy individuals rose with the nation’s prosperity.

The IRS study, for which 1998 figures are the most complete, doesn’t reach any conclusions about whether improper tax shelters are at work in the latest numbers. But government officials are increasingly worried about tax dodging among well-to-do individuals through offshore trust arrangements and other schemes.

The Senate Finance Committee will hold a hearing next week that examines the “explosive growth” in tax shelters and other tax-avoidance strategies being promoted on the Internet. “It is our estimate that there are now hundreds of thousands of taxpayers who are either participating or are seriously considering participating ... in these tax schemes,” according to a memo by committee investigators. Many are middle-income individuals, and there is a growing focus on the elderly in the promotions, these investigators say.

At a confirmation hearing Thursday for Kenneth Dam, President Bush’s nominee for deputy Treasury secretary, Sen. Max Baucus (D., Mont.) said he is worried that Americans are “becoming more shameless about how they dodge the IRS.”

The IRS has seen its audit rates plummet in recent years because of personnel reductions, although computer matching of tax records is taking up some of the slack. Mr. Dam assured Mr. Baucus that he would make tax compliance a top priority.

To be sure, the IRS study shows that the number of well-to-do taxpayers was rising rapidly in 1998, near the height of the recent bull market. The study showed that between 1997 and 1998, the total number of tax returns increased 1.9 percent, while the number of returns with adjusted gross income over $200,000 rose by 15.3 percent.

And by many measures, high-income taxpayers are shouldering a significant part of the tax burden. The tax on 47 percent of the high-income returns was at least 25 percent of adjusted gross income, the IRS said.

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