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L.A. Still Leads the Nation in IRS Audits

Taxes: High incomes, cash-based businesses and self-employment make state's taxpayers prime targets for closer government scrutiny.

April 09, 2001|LIZ PULLIAM WESTON | TIMES STAFF WRITER

Fewer L.A. taxpayers had to grapple with an audit last year, but Los Angeles County still achieved the dubious distinction of being the most audited place in the nation, according to new Internal Revenue Service statistics.

Angelenos--and other Californians, for that matter--are accustomed to such attention. For six years running, the IRS' four California districts have been among the country's most-audited areas.

Still, audit rates locally and nationally have fallen sharply and stand at new lows, according to data collected by the Transactional Records Access Clearinghouse, a nonpartisan data research organization at Syracuse University in New York.

Last year, just 0.19% of taxpayers, or 19 out of each 10,000 taxpayers, were subjected to an intensive, face-to-face audit with an IRS officer. That compares with 31 out of each 10,000 taxpayers in 1999 and is about a third of the 1996 audit rate.

A somewhat larger proportion of Americans dealt with a so-called service center audit. These audits, conducted largely by mail, boosted the overall audit rate to 0.49% in 2000, compared with 0.90% the year before. (Service center audit figures are not broken down by state or district.)

These figures don't include the IRS' computerized matching program, which tries to catch tax cheats by comparing taxpayer returns to income records provided by employers and financial institutions. That enforcement effort also has declined. The number of taxpayers nabbed as a result of computer matching dropped last year to 1.4 million from a peak of 4.8 million.

The IRS blames the low enforcement rates on a smaller staff and a major reorganization that took auditors away from their traditional duties to staff taxpayer hotlines and other education efforts.

In Los Angeles, 0.48% of taxpayers encountered a face-to-face audit last year, down from 0.67% the year before and 1.59% in 1996.

Agency officials insist that they don't deliberately single out Californians. But high incomes, cash-based businesses and self-employment tend to trigger more audits, and California has plenty of all three.

"We audit based on what's on the return," said IRS spokesman Ken Hubenak. "It's the same as it's always been."

Southern California counties in general, and Los Angeles in particular, also have a reputation as fraud meccas, tax preparers said. Some scamsters target immigrants and the working poor by falsifying returns to boost refunds, while others offer tax evasion schemes to the wealthy.

Among other trends gleaned from the clearinghouse figures:

* In Los Angeles, high-income taxpayers get audited at a rate about three times the national average, with 1.44% facing an in-person audit last year. In the rest of Southern California, only 0.72% of taxpayers with incomes of more than $100,000 were selected for face-to-face audits.

In Northern California--home to Silicon Valley and former dot-com millionaires--the audit rate for the affluent is actually just below the national average at 0.46%.

* California is no tax haven for low-income taxpayers. Californians with incomes under $25,000 faced in-person audits at twice the national rate.

* Tax cheats in most of California faced a low risk of criminal prosecution.

The Los Angeles court district--which includes most of Southern California--ranked 51st among 90 U.S. court districts for cases referred by the IRS for criminal prosecution, while the districts that include Sacramento and San Francisco ranked 54th and 70th, respectively.

Only San Diego bucked the trend, ranking ninth among the districts nationwide for both criminal referrals and convictions.

Drug-related charges and fraud were the leading causes for criminal prosecution in San Diego, while tax evasion and "willful failure to file" prompted most criminal filings in Los Angeles.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

L.A. Leads in Audits

The Los Angeles district, which includes Los Angeles County, has the highest audit rate in the nation. The U.S. average is 0.19%, with an average income of $42,917.

Most-Audited Districts

*--*

District % audited Average income** Los Angeles County 0.48% $44,215 North Central Midwest* 0.47 47,259 Southern California 0.47 46,563 Northern California 0.42 52,650 Manhattan (New York City) 0.37 66,191 Central California 0.29 50,117

*--*

Least-Audited Districts

*--*

District % audited Average income** Ohio 0.10% 42,121 New Jersey 0.10 58,295 Georgia 0.11 44,284 Michigan 0.11 48,251 Pennsylvania 0.13 45,198 Virgina/West Virginia 0.13 46,308

*--*

* Includes Minnesota, North Dakota and South Dakota

** Average adjusted gross income

Source: Transactional Records Access Clearinghouse

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