‘Radically Different Answers’
“You could have two qualified appraisers with two different viewpoints come to radically different answers about the value,” Matt Crane, a New York-based appraiser who defends valuations in front of the IRS, said. “Every time the IRS has looked at one of my appraisals they have always found something they don’t agree with.”
For example, the IRS would have a relatively easy time determining the majority of Jeff Bezos’s wealth, since approximately $105 billion of his $113.2 billion net worth is from Amazon.com Inc. stock, according to the Bloomberg Billionaires Index.
But it could be a complicated and costly battle for the IRS and Bezos to agree on the value of his space exploration company Blue Origin. Bloomberg Billionaires index values it at $5.4 billion but points out that determining the actual worth is difficult because of its nascent stage, the lack of strategy details and the fact that Bezos is the sole shareholder with no apparent intent to sell.
Someone like Charles Koch, who owns portions of at least a dozen closely-held companies, would be a nightmare for an IRS auditor to verify annually. Koch is worth an estimated $59.4 billion, with stakes in pipelines, chemicals, paper and industrial businesses.
It’s also a time-consuming process for the taxpayer, as well as the IRS. A typical appraisal takes about four to six weeks, said Ray Koji Bratcher, business appraisal specialist in Los Angeles, California. The details about how often appraisals would be required haven’t yet be specified in Warren’s plan, but annual valuations under a wealth tax would likely mean there would be more businesses to be appraised than the people who are trained to do that work could complete, he said.
“What we need to make the wealth tax work in the short run is high audit rates on the very rich, which is feasible,” Zucman said. He suggests an audit rate in the 30-50% range.
But the IRS has shrunk in recent years as Congress has repeatedly cut the agency’s budget. The IRS had 9,346 fewer examination and collection agents in 2018 than in 2010, a loss of more than 22% of the audit workforce, according to agency data. With that, the IRS lost experienced examiners that would be able to tackle auditing exceptionally wealthy people, according to Everson, the former commissioner.
Audit Rate
Adding a wealth tax to the agency’s responsibilities would be a tall order, according to Tommy Wright, a partner at the accounting firm RSM.