Some of Wealthiest Americans Still Avoiding Taxes, IRS Says

A handful of the wealthiest people in America are still able to avoid paying federal income tax despite repeated congressional efforts to close loopholes.

Of 529,460 couples and individuals who reported incomes of more than $200,000 on returns filed in 1987, 595 paid no tax, the Internal Revenue Service says in a new report. Those 595 had incomes averaging $600,000; two in every three had capital gains averaging $490,000.

An additional 33,805 over-$200,000 earners paid tax at an effective rate of less than 15%, typically less than a middle-income family would pay. Almost 3,000 paid less than 10%.

The estimates were reported without comment by the IRS in the quarterly “Statistics of Income” compilation.

The rich were able to avoid taxes by reporting big losses on farm and partnership investments; by racking up large capital gains, 60% of which were excluded from taxation; by claiming itemized deductions averaging $262,000 and by using a credit for taxes paid abroad.

The figures, based on unaudited returns, do not include high-earners whose incomes are made up largely of tax-exempt interest.

Returns covered in the latest report, reflecting income earned in 1986, were the last filed before most provisions in the 1986 tax overhaul took effect. Several changes in that law were designed to reduce the ability of wealthier people to avoid taxes.

The report showed the number of people with annual incomes of more than $200,000 grew from 370,430 on returns in 1985 to 529,460 a year later. The chief reason apparently was a big selloff of investments in 1986 to avoid a higher capital-gains tax that took effect in 1987.