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The study, which was included in Olsen’s annual report to Congress in January, used data from 2009 tax returns to plot the DIF scores for sole proprietorships across the country. The city where you live is not a component of the score, according to the study. Nevertheless, researchers were able to identify clusters of likely tax cheats.
Sole proprietorships make up about two-thirds of all U.S. businesses. Sole proprietors report business income on their individual tax returns and, the IRS says, they account for the biggest share of the tax gap, which is the difference between what taxpayers owe each year under the law and what they actually pay.
Who gets audited by the IRS?
By the Associated Press
The Internal Revenue Service only audits about 1 percent of individual tax returns each year. But the more money you make, the more likely you are to get audited. A look at which returns were audited in the 2012 budget year:
Individual returns filed in the previous year: 143 million.
Audited by mail: 1.1 million.
Audited in person: 360,000.
Audit rate: 1 percent.
Individual returns with incomes above $200,000: 4.8 million.
Audited by mail: 109,000.
Audited in person: 70,000.
Audit rate: 3.7 percent.
Individual returns with incomes above $1 million: 337,000.
Audited by mail: 23,000.
Audited in person: 18,000.
Audit rate: 12.1 percent.
Small corporation returns (assets under $10 million): 1.9 million.
Audit rate: 1.1 percent.
Large corporation returns (assets $10 million and higher): 60,500.
Audit rate: 17.8 percent.
Source: IRS enforcement: http://tinyurl.com/agwzcon
The tax gap was $345 billion in 2006, according the latest IRS estimate.
In all, researchers identified clusters of potential tax cheats in more than 350 communities in 24 states, mostly cities and towns but some neighborhoods, too. About one-third of them were in California, with most near Los Angeles and San Francisco.
Most of the others were in communities near Houston and Atlanta, and in the Maryland suburbs of Washington. There were relatively few in the Midwest or the Northeast.
The researchers also looked for areas with high concentrations of small business owners who were very unlikely to cheat on their taxes.
They came up with four: the Aleutian Islands in Alaska; West Somerville, Mass., a neighborhood in Somerville, a suburb of Boston; Portersville, Ind., an unincorporated town in the southern part of the state; and Mott Haven, a neighborhood in the Bronx, one of New York City’s boroughs.
Stephen Mackey, president and CEO of the Somerville Chamber of Commerce, said he’s glad the business owners in his community excel at civic virtue. But he was at a loss to explain why they stood out from so many others across the country.
"I’d like to think we’re not alone in terms of the civic engagement of business people," said Mackey. "But I would say two things. One is they are very close to the community inside and outside their businesses. At the same time, it’s not small town America. It’s minutes from downtown Boston."
AP Director of Polling Jennifer Agiesta contributed to this report.
Online: National Taxpayer Advocate study: http://tinyurl.com/cjtgpt5
Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap
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