Not having the means to catch every fraudster is very different from wanting them to commit the fraud. I think the only sense in which the IRS wants tax fraud is that some portion of its bureaucracy is dedicated to handling fraud and many of the people so employed would prefer continued employment to magically eliminating all fraud.
Wouldn't they still be guilty of tax fraud? Making more actions/people criminal just to catch the people that should be criminal more easily doesn't sit well.
I'm sure those aren't the only reasons. Quite a lot of people get away with tax fraud. If the IRS really knew everything and filing taxes was just a pointless exercise, why is fraud so prevalent?
As someone who works at a non-profit that partners with various for-profits, I'm skeptical that the IRS would allow such sort of large-scale tax fraud to happen.
Given that 1) the law involved is tremendously complex, that 2) enforcement and compliance actions by the IRS are hugely underfunded and undermanned, and 3) that corporate and monied America has an undue direct influence on the legislative process, including tax legislation, then I'd say that de facto fraud if not de jure fraud is an open question.
There is still motivation to be honest about receiving unwarranted money. Tax fraud is a felony and there are already regulations about receiving unwarranted tax funds.
There is independent oversight through the tax courts but your typical person off the street can't afford to defend themselves from the united states government.
You have an idealistic assumption that people who are targeted for audits or fines are all guilty of tax fraud. This isn't true. Sometimes is just a matter of them losing supporting documentation.
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