IRS WANTS Y-O-U MID, LOW-INCOME PAYERS FACE AUDITS.

Byline: Martin Kuz Staff Writer

With Tax Day over, be warned: This year's Internal Revenue Service audits will target the middle- and working-class.

According to IRS statistics, eight out of 10 people audited in the past fiscal year made less than $100,000, a trend IRS officials say will continue even though it has come under increasing fire from taxpayer advocates.

The IRS denied that it targets any one class in its approximately 600,000 annual audits, but officials said the agency has a mandate from Congress to go after tax cheats in the lower and middle classes. And audits are easier for the IRS against people in lower income brackets because they are often done through the mail and without legal representation.

Critics blasted the trend as ``inefficient and unfair.''

``There's so little money to be gotten from low-income people that ... it doesn't make sense,'' said Bob Graziano, managing attorney of the Pacoima-based Neighborhood Legal Services of Los Angeles County.

Mario Matute, manager of a low-income job training program in Pacoima, questioned the agency's integrity while stopping shy of branding the IRS discriminatory.

``I understand why low-income people have to be audited, but why don't you catch people across the board?'' Matute said.

Graziano, whose agency provides free legal assistance to low-income workers, criticized the IRS for what he views as ``taking advantage of people who can't afford an attorney. That seems to be a rather hostile strategy.''

He added that the IRS should go after high-income wage earners because ``there's at least $20,000 in taxes at stake when someone makes $100,000. That's more worth their time.''

A major reason for the audit chasm is the welfare reforms passed by Congress in 1998 that authorize the IRS to closely scrutinize the returns of taxpayers claiming an earned income tax credit.

The EITC, as it's known in tax-speak, is a refundable credit - which means people can claim it even if their annual income falls below taxable levels.

Under the EITC, married couples with no children can receive a maximum of $353. Parents with one child can receive a maximum of $2,353, and parents with two or more children can receive a maximum of $3,888.

In 1998, Congress gave the IRS a five-year budget to attack what it considered widespread abuse of the credit.

The IRS spent $144 million in fiscal year 2000 investigating the problem.

Deborah Guajardo, spokeswoman for the Los Angeles IRS office, said the ``refundable'' nature of the credit makes it tempting for unscrupulous tax filers.

``When there's free money, there's a potential for people to misuse it,'' she said.

Guajardo denied that the IRS targets taxpayers based on their income bracket or where they live. ``The goal is to identify returns with the greatest probability of error,'' she said.

But the emphasis on EITC enforcement, combined with a slashing of the agency's work force by Congress, has left the IRS in a tax-collection bind.

The total number of revenue agents and tax auditors dropped from 18,404 in fiscal year 1995 to 14,252 last year, according to the IRS. Meanwhile, the number of tax returns between 1992 and last year jumped 13 percent to 230 million.

Faced with dwindling manpower, the tax agency has become more reliant on audits delivered by mail, as opposed to the intensive, in-person audits of years gone by.

Published reports show that 247,000 in-person audits netted $2.4 billion last year, compared with $2.1 billion brought in by correspondence audits and other corrections.

Tax and labor advocates contend that the IRS targets low-income taxpayers through correspondence audits more often than their high-income counterparts because the agency lacks the funding to undertake a greater number of costlier in-person audits.

In other words, low-income workers are more likely to roll over and pay when an audit lands in their mailbox, advocates say.

Although their evidence is anecdotal, they say they're hearing more complaints from the working poor about getting audited. Matute, manager of the Pacoima Workforce Development Initiative, said more of the low-income workers who visit him have voiced their frustration at the IRS.

``The focus on taxing new immigrants, especially new immigrants to the Los Angeles area, is growing,'' he said. ``I think there's most definitely a greater emphasis on these people than in the past.''

Tax and labor advocates say the audit gap contradicts the much ballyhooed evolution of a kinder, gentler tax-collection agency. IRS Commissioner Charles O. Rossotti has said the agency's ``transformation'' will be aided by the hiring of more than 2,000 new full-time employees in fiscal year 2001.