Report: S. California taxpayers face more IRS scrutiny

April 12, 1998
Web posted at: 11:04 a.m. EDT (1504 GMT)

NEW YORK (CNN) -- Taxpayers in Southern California are four times as likely to be audited by the Internal Revenue Service as those living in New Jersey, The New York Times reported in its Sunday editions, citing a university study of tax data.

Overall, Americans stand a 1-in-150 chance of facing IRS scrutiny this year, the Times said. But data obtained by the Transactional Records Access Clearinghouse, a research arm of Syracuse University, show that in 1996 -- the latest year for which figures are available -- residents in Southern California faced a 1-in-62 chance, compared with 1 in 238 for New Jersey.

Part of the reason for such disparities, the researchers said, was reliance on a 1988 study of taxpayer norms. The IRS' "dif formula" flags taxpayers who deviate significantly from those norms. About one-third of 1996 audits were initiated because of the formula, the Times said.

The IRS said another reason for the higher audit ratio in California was that its residents had more income from self-employment and business activities that the IRS found prone to abuse than do residents of other states, the newspaper said.

Critics of the IRS call its norms outdated because they were calculated before a boom in self-employment. The tax agency had intended to update its 1988 study in 1995, but Republicans put an end to the project, according to the Times.

The Syracuse researchers also found that back taxes and penalties were rising for the poor and falling for the rich, in a large part because of a 1995 congressional directive that those claiming earned-income credit be closely monitored.

One consolation for Americans facing a Wednesday deadline for filing tax returns is that audits are becoming rarer.

Since 1988, the number of auditors and agents who review tax forms has decreased 14 percent, while the number of taxpayers has increased 11.8 percent, the Times said. Audits of returns for suspected fraud have dropped 75 percent, it said.

Reuters contributed to this report.

Related stories:

• Congress hopes to shift burden of proof to IRS - April 11, 1998
• IRS overhaul cleared by Senate panel - April 1, 1998
• Gore urges rediscovering the 'service' in IRS - March 18, 1998
• Rubin angered by IRS' possible abuse of taxpayers - December 13, 1997

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