Random Irs Audits Aren’t So Random 85 Percent Of Those Audited Had Incomes Below $25,000

If you’re poor and live in the South, you might want to check that federal income tax return very carefully before sending it off to the Internal Revenue Service.

A study by the General Accounting Office found that 47 percent of randomly audited taxpayers over the past three years live in 11 Southern states. And more than 85 percent of those audited had incomes below $25,000.

The number of taxpayers selected at random for audits is small, compared with the total number of IRS audits. During the 1994-1996 tax years, for example, the GAO said only 2,961 of the 5.6 million returns audited were selected at random.

Random audits are restricted to groups the IRS has suspicions about, one of which comprises low-income working families who claim the earned income tax credit. To qualify for that credit, a couple with one child must earn less than $25,760, with virtually no interest or other unearned income.

“The emphasis on attacking the poor is unconscionable,” said Sen. Paul Coverdell, R-Ga., who requested the GAO study. “You can’t help but conclude that they’ve decided if they go after somebody who’s defenseless, it’s easier.”

But House Speaker Newt Gingrich, R-Ga., and other prominent Republicans repeatedly have attacked the earned income tax program as a prime example of fraud and abuse in government. Last April, the Treasury Department reported that 26 percent of claims for the benefit - $4.4 billion worth - went to unqualified recipients. Gingrich has even suggested abolishing inheritance taxes, the lost revenue recouped by tightening the earned income tax program.

Agency officials contend the 2,961 random audits weren’t truly random.

John M. Dalrymple, the IRS acting chief compliance officer, said the agency targeted six groups for random audits from 1994 through 1996 because of “suspected or known noncompliance” with tax laws. The largest comprised taxpayers claiming the earned income tax credit, who the GAO said were singled out because of the repeated congressional criticisms that taxpayers were abusing the credit.

Other targeted groups were Ohio restaurants with alcoholic beverage licenses, returns where more than one taxpayer claimed the same dependent, self-employed Georgians claiming business losses and collecting the earned income tax credit as well, self-employed Missourians who didn’t pay a self-employment tax and sole proprietors in Illinois with questionable wholesale and retail filings.

GAO said the IRS selected 7,421 returns at random from those six groups during the three years, plus an undisclosed number picked from the earned income tax credit group in 1996. The IRS gave the congressional watchdog agency detailed information about only the 2,961 audits that were completed, of which 1,380, or 47 percent, were from the 11 Southern states. Only 29 percent of Americans live there.

Taxpayers claiming the earned income credit accounted for more than 80 percent of random audits completed during the three years. Since the credit is designed to help the working poor, and since the South is the nation’s poorest region, a higher concentration of random audits would have been expected in the South.

But Coverdell said the IRS shouldn’t audit anyone unless it has reason to suspect a violation of tax law.

“For them to just knock on your door one morning out of the blue and say we’re just going to rummage around here - that just runs against the American grain,” he said.