The IRS doesn’t explain how it picks targets for a tax audit. But new data show it happens most often near Los Angeles, San Francisco, Houston, Atlanta and Washington, D.C.
The data come from a study done by the National Taxpayer Advocate and reported on by The Associated Press. The taxpayer advocate’s office is an independent part of the IRS, like an ombudsman, that handles complaints. It got insider access to audit data to try and figure out why some people are more likely to cheat on their taxes.
The study looked mostly at small-business owners, especially sole proprietors, because they have greater control over their cash flow than employees do – and thus more opportunity to twist the truth. It found that owners of construction and real estate rental companies are more likely to cheat on taxes, and that audits often take place in middle- to upper-class communities.
One-third of the communities where audits happened most frequently were in California, mainly near Los Angeles and San Francisco. Audits were rarer in the Midwest and the Northeast. Citizens in West Somerville, Mass., near Boston, were found to be especially unlikely to cheat on their taxes.
The study also explained that every tax return is automatically scored on the odds it’s untruthful. The score is called a Discriminant Inventory Function, and returns with a high DIF are more likely to be audited. Lawyers, accountants and architects were more likely to have low scores, the study said. (Location is not a factor in the score, but the data still showed a trend that likely reflects other factors, such as income.)
The IRS audits about 1 percent of tax returns every year, and for 2012 those investigations netted them an additional $30.4 billion in missing taxes. Worried about an audit? Check out the links below.