The revelation that residents of Maine’s two poorest counties are more likely to be audited than wealthier Americans has U.S. Sen. Angus King calling on the Internal Revenue Service to change its ways.

In the wake of recent ProPublica investigations into the frequency of IRS tax audits, the Maine independent said federal tax overseers need to adopt a more-just method of selecting whose returns should be audited.

Data compiled by Tax Notes found Piscataquis and Washington counties are treated especially unfairly because they rely more heavily on the anti-poverty Earned Income Tax Credit.

King said the frequency of audits in the two counties is “unacceptable” and “causes severe economic hardship for those who can afford it the least.”

The most recent ProPublica story on the trend said last week that “as the IRS has dwindled in size and capability, audits of the poor have accounted for more of what it does.”

Estimated data from Maine published by Tax Notes shows a similar bias towards more audits for poorer counties within Maine.

Taxpayers in relatively well-off York County, for instance, face audits at a rate of 6.8 per 1,000 residents, the lowest rate in the state, while those in struggling Washington County in northeastern Maine are audited at a rate of 7.9 per 1,000 residents.

Put another way, it means someone filing taxes in Washington County is 16 percent more likely to face an audit than someone in York County.

Androscoggin, Franklin and Oxford counties fall in the middle of the pack for Maine audit rates.

ProPublic found recipients who claim the credit on their tax returns are audited at twice the rate of Americans earning between $200,000 and $500,000 annually, a consequence of the IRS scaling back on larger, time-consuming audits following budget cuts during the past eight years.

For example, it said, last year IRS audits of Earned-Income Tax Credits amounted to 36 percent of all of its reviews of tax filings. In 2011, before budget cuts made a dramatic impact on the IRS, EITC audits made up 33 percent of the total, an ongoing shift that has poorer people facing a greater risk of an audit than nearly all other Americans.

The only group with a greater chance of facing an audit than the poor, ProPublica reported, are those earning more than $1 million annually. Households that earned between $50,000 and $100,000 are least likely to be audited, ProPublic said.

After reviewing the data, King wrote to the IRS commissioner Monday “to express my concern regarding the disproportionate number of tax audits that occur in two of Maine’s most disadvantaged counties.”

“I urge you to refocus the IRS’s all-too-scarce resources on auditing people with known rates of high tax noncompliance, and away from the people, including many in my state, who are most harmed by the audit process,” the second-term lawmaker said.

King said the greater focus on auditing EITC filers is counterproductive.

He said that according to the National Taxpayer Advocate, overpayments of the credits account for 6 percent of overall noncompliance by taxpayers.

“By contrast, individuals who underreport business income are responsible for 51.9 percent of such noncompliance,” King said.

He said the IRS ought to “refocus its audit activities on the individuals who owe the most in unpaid federal taxes.”

Tax Notes said the IRS and policymakers could change things by increasing the IRS enforcement budget “to enable more audits of high-income taxpayers,” who generally consume more resources because their returns are more apt to be complex.

Lacking that, though, it said the IRS could take steps to make sure it audits returns from each state at about the same rate, which would help alleviate the bias toward auditing lower-income Americans.

ProPublic found the five counties in the country with the highest audit rate are all in the rural South, in poor, mostly Africa-American counties. It also found particularly high rates “in South Texas’ largely Hispanic counties and in counties with Native American reservations, such as in South Dakota. Primarily poor, white counties, such as those in eastern Kentucky in Appalachia.”

The lowest audit rates, on the other hand, “tend to be home to middle-income, largely white populations: places like New Hampshire, Wisconsin and Minnesota,” ProPublica found. New England is generally among the least likely areas for audits.

King said in his letter to the IRS that “when a taxpayer comes under audit,” the IRS may hold back refunds until the audit is complete. ProPublica reported audits often take more than six months before agents even look at the returns because of a staffing shortage.

“By auditing taxpayers who claim the EITC more frequently, the IRS withholds refunds from people who depend on those funds to make ends meet,” King said. “While wealthier families likely have the financial reserves to weather such a financial setback, many people in Washington and Piscataquis counties do not.”

Moreover, the senator said, “families claiming the EITC often do not have the resources to obtain professional representation during an audit.”

“In Maine,” King said, “low-income families who come under audit have recourse to just one free legal clinic.”

As a result, King added, “I am deeply concerned for the financial well-being of my state’s most-vulnerable citizens.”

scollins@sunjournal.com

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