New York area at top in income, Mississippi in audits by the IRS Data show tax agency focusing on the poor

April 13, 1997|By NEW YORK TIMES NEWS SERVICE

Americans in the New York metropolitan region have the highest incomes in the country, IRS records show, but taxpayers are more likely to see their tax returns audited if they live in Mississippi, where incomes are the lowest in the country.

That fact emerges from the most extensive collection of IRS data ever assembled outside the agency, figures suggesting that rather than being an anomaly, the audit rates in the tax agency's districts for New York and Mississippi illustrate a major shift in policy.

"The data indicate that the IRS is increasing its focus on the poorest Americans and the smallest business while paying less attention to richer Americans and larger companies," said Susan B. Long, a Syracuse University professor who assembled the information and posted it last night on the Internet.

The release of the information occurs as calls from members of Congress to overhaul or eliminate the income-tax system are rising with the approach of the April 15 deadline to file returns.

Tuesday, the House Ways and Means Committee opens hearings into the effects on families of scrapping the income-tax system and replacing it with another system, probably a tax on goods and services.

Vow to change tax system

Rep. Bill Archer, R-Texas, chairman of the powerful tax-writing committee, has vowed to "tear the tax system out by its roots."

These are some highlights from the information:

Audit rates for people earning less than $25,000 a year rose by nearly half from 1994 to 1995, as audit rates fell by nearly a third for those earning more than $100,000. Since 1988 the audit rate for people earning more than $100,000 has fallen, from 11.4 percent to 2.94 percent in 1994. The audit rate for people who earned less than $25,000 was 1.04 percent, up from 0.74 percent in 1994.

Unincorporated businesses with less than $25,000 in revenues are 2 1/2 times more likely to be audited than those with revenues of more than $100,000.

Audits of large companies make up just two-10ths of 1 percent of all audits, yet they produce 58 percent of the increased revenue generated by audits. Despite that, the IRS has in the past five years reduced the audit rate of the largest corporations, from 72.5 to 51 percent.

Tom Smith, an assistant commissioner of the IRS, said the figures were accurate but misleading, and there had been no shift in attention from the top of the economic pile to the bottom.

Audit rates increase for poor

Smith said audit rates for the lowest-income Americans appeared to have risen largely because notices were sent to many people who had taxes withheld from their pay but did not file returns. Those notices show up in IRS statistical reports as audits, he said.

Emphasizing that he had no hard information, Smith said he suspected that audits of businesses with less than $25,000 of revenues had increased, because when the agency does not know how much revenue a business had, it may list the sum as zero or a nominal figure in statistical reports.

And, Smith said, the audit rate for large companies has declined because Congress cut the IRS budget, and he would welcome increased financing to conduct additional audits.

The information was assembled by the Transactional Records Access Clearinghouse, a research arm of Syracuse University that is run by Long and David B. Burnham, a former reporter for the New York Times.

The figures show that the overall odds that an individual would be audited in 1995, under the traditional IRS definition of an audit, was seven-10ths of 1 percent, even as the agency publicly reports a rate of 1.67 percent.

Definition changed

The difference stems from a change the agency made in 1988, when it started counting as audits the routine mailing of notices to people who had minor discrepancies on their returns.

That change allowed the agency to report that it had audited 1.57 percent of all individual returns in 1988 when, following the traditional definition, the rate was 1.03 percent.

The highest rate, by the traditional definition of an audit, is in Nevada, at 2 percent. The rate is above 1 percent in 12 districts. Kentucky has the lowest, three-10ths of 1 percent.

The Manhattan district of the IRS had the highest average adjusted gross income in 1994, at $49,737. Mississippi had the lowest, at $26,993.

The audit rate in the Manhattan district, which includes Westchester and Rockland counties, as well as Manhattan, the Bronx and Staten Island, was 1.07 percent, compared with 1.15 in Mississippi.

More than 35,000 pages of figures, tables and color maps of income, tax and audit information categorized by state, IRS district and county can be examined free at http: //trac.syr.edu/tracirs/.

Pub Date: 4/13/97

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