— Story by Aimee Picchi – CBS News Moneywatch
Taxpayers in rural, poor parts of the U.S. are more likely be audited by the Internal Revenue Service than those living in wealthier counties, according to a new analysis. The county where residents are most likely to face an audit: tiny Humphreys County, Mississippi, where the median household income is less than $24,000 a year, or less than half the income of a typical U.S. family.
That may come as a surprise given that higher-income Americans typically have more tax loopholes and other gimmicks at their disposal to avoid the taxman than lower-income people do. The higher audit rates in poor regions comes down to an IRS policy of scrutinizing taxpayers who claim the Earned Income Tax Credit, or EITC, a refundable tax credit aimed at low- and moderate-income Americans, writes Kim M. Bloomquist, a former senior economist in the IRS Office of Research, in Tax Notes.
Counties with higher-than-average audit rates tend to be located in the South, the northern Plains, Mountain and Western states, Bloomquist wrote in his report. The upper Midwest, Mid-Atlantic and New England states have lower audit rates.
The IRS said audits aren’t influenced by geography or ethnicity. “Fairness and integrity are built into the foundation of our return selection process for audits, which is designed to select returns with the highest likelihood of noncompliance,” the IRS said in an email.
It added, “Audit inventory selection uses systemic risk-based scoring criteria. The audit selection process applies the same business rules, filters and scoring to all returns to identify potentially non-compliant taxpayers. The selection criteria does not include any components or factors related to the geographic location or ethnicity of the taxpayers.”
Little Humphreys County –home to fewer than 10,000 residents and known for its catfish farming — is one of eight counties in Mississippi that comprise the 10 most highly audited U.S. counties, with the other two located in Louisiana and Alabama.
The analysis indicates that the IRS targets certain geographic regions more than others because the residents of certain regions are more likely to use the EITC, such as the South, where residents tend to be poorer than in the Northeast.
Many of the counties with the highest IRS audit rates have larger minority populations. That includes Humphreys, where 3 of every 4 residents is black.
By comparison, counties around the U.S. with the lowest audit rates tend to have higher incomes and a population that’s mostly white. Denali, Alaska, with the lowest audit rate of all U.S. counties, is 84 percent white and has a median household income of more than $83,000, according to Census Data.
Audit rates down for millionaires
Overall, higher-earning Americans are still more likely to be audited by the IRS. But that, too, is changing. Because of spending IRS spending cuts, audit rates for millionaires have declined by half since 2010. Corporate audits are also on the wane.
But the audit rates for people who claim the EITC hasn’t fallen as sharply as for the rich and corporations, ProPublica reported in December. That means a typical EITC claimant, who earns less than $20,000 per year, is more likely to face an audit than a millionaire.
The reason, ProPublica noted, is that some taxpayers claim EITC in error. Ironically, about 1 in 5 taxpayers who qualify for it don’t claim it, according to the Center on Budget and Policy Priorities.
The charts below show the highest and lowest audit rates by what Blomquist calls “audit intensity,” which is the total estimated audits for tax years 2012 to 2015 divided by the total number of taxpayers in 2015.
10 counties with the highest rate of IRS audits
- Humphreys, Mississippi (4.81)
- Tunica, Mississippi (4.7)
- East Carroll, Louisiana (4.67)
- Coahoma, Mississippi (4.65)
- Noxubee, Mississippi (4.60)
- Holmes, Mississippi (4.57)
- Quitman, Mississippi (4.57)
- Sharkey, Mississippi (4.57)
- Claiborne, Mississippi (4.55)
- Greene, Alabama (4.45)
10 counties with the lowest rate of IRS audits
- Denali, Alaska (2.17)
- Putnam, Ohio (2.49)
- Calumet, Wisconsin (2.51)
- Washington, Wisconsin (2.51)
- Storey, Nevada (2.54)
- Sargent, North Dakota (2.54)
- Sherburne, Minnesota (2.54)
- Sumter, Florida (2.54)
- North Slope, Alaska (2.55)
- Mercer, Ohio (2.55)