IRS AUDITS MORE LIKELY IN L.A.

Byline: Daily News Wire Services

Los Angeles taxpayers are more likely to face the wrath of Internal Revenue Service auditors than residents in several other large metropolitan areas, according to researchers.

But the odds of an audit-related criminal conviction appear to be lower for big city denizens across the nation, the researchers said.

Newly released IRS data, obtained by researchers at Syracuse University in New York, show that Los Angeles County taxpayers are four times as likely to be audited as those in New Jersey, even though the two areas have roughly the same population and the same average income.

One reason Angelenos are audited more is that the IRS has been looking harder in California for people who do not file tax returns. But another is that the agency relies on a decade-old study of taxpayer behavior that critics call obsolete.

This year, 174 million Americans must file an estimated 124 million individual and joint tax returns before midnight Wednesday. About one in 150 will be audited; in 1996, the last year for which figures are available, 760,197 returns out of 115.4 million got the IRS once-over.

In Los Angeles, one out of every 110 returns were audited. Compare that with New Jersey, where one in 1,000 are audited, or the Carolinas, one in 1,428.

The agency bases audit decisions on several factors, including suspicions about the integrity of the preparer or information from a related return - for example, one filed by a business partner caught cheating.

But it also gives huge weight to statistical departures from norms established in a 1988 study - a study that critics say is outdated because of the huge changes in the American economy since then, from the Wall Street bull market to the explosion in the ranks of the self-employed.

The 1988 research was conducted by picking thousands of taxpayers at random and making them prove each entry on their return.

By gaining such full disclosure from a broad cross section of the population, the IRS was able to determine how much people in various income groups actually gave to charities, paid in state and local taxes, spent on medical care and allocated to other tax-deductible costs.

Why California?

The disparities in overall auditing rates were narrower, ranging from one in 62 in the two IRS districts covering Southern California to one in 278 in upstate New York and one in 294 in Ohio.

In the New York City region, the overall rates ranged from one in 133 in the Manhattan tax district that includes its northern suburbs; one in 172 in Brooklyn, Queens and Long Island; one in 167 in Connecticut and Rhode Island, and one in 238 in New Jersey.

Thomas J. Smith, the assistant commissioner for audits, said that Californians were audited the most because ``the characteristics of their returns'' indicate a greater likelihood that more taxes may be due.

Californians have more income from self-employment and business activities that the IRS has found prone to abuse than do residents of New Jersey, for example, and the super-rich in California are much wealthier than those in New Jersey.

While Southern Californians appear to be audited more, their chances of being convicted of a federal tax crime may be lower than the rest of the nation.

Small cities

Syracuse researchers also are challenging the fairness of Internal Revenue Service criminal prosecutions, spotlighting cases where small U.S. cities had more convictions per capita than major business centers.

The study by the Transactional Records Access Clearinghouse, or TRAC, reported per capita tax convictions were twice the national average in IRS offices in Pensacola, Fla.; Greensboro, N.C.; Memphis, Tenn.; and Charleston, W.Va.

But major business centers, including Los Angeles, Chicago, Boston and Detroit, reported lower than average criminal convictions, TRAC said.

The Senate Finance Committee, which is preparing another series of high profile hearings looking into IRS horror stories, is expected to review the report just two weeks after the April 15 tax filing deadline.

The committee also is expected to hear cases alleging IRS agents abused citizens' rights in criminal tax cases, according to several sources who have met with Senate investigators.

The IRS said the TRAC data and the study's conclusions are flawed. But David Burnham, an author and research professor with Syracuse University who helped prepare the study, said the variation raises troubling questions about management of IRS criminal matters.

``You can see large and hard-to-explain variations on the criminal side that I think raise questions about fairness and effectiveness of the agency,'' Burnham said.

Burnham said his study showed variations among certain districts over time. The Charleston, W.Va., district, for example, has been in the top fifth of criminal convictions per capita since 1992.

But Los Angeles ranked in the bottom three-fifths during the same period, even though other highly populated areas such as Manhattan and the District of Columbia ranked about as well as Charleston.