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Regional Variation in Enforcement

Public trust is an essential requirement for modern tax collection. When taxpayers get the idea that tax collectors are not acting in a generally equitable way, the public becomes wary and government is forced to spend more and more of its revenues on coercive efforts to achieve compliance.

Thatís why it make very good sense for the IRS to pay attention to the constitutionally mandated goal of fairness. Taxpayers who know the government is doing the right thing by them are much more likely to respond in kind and do the right thing by the government.

Given this reality, the IRSís recent failure to collect data that allows the American people, Congress and the managers of this powerful agency to determine whether similarly situated tax payers are being treated in similar ways is disturbing. (See New Findings.)

The analysis of agency data available in the past had raised good questions about the fairness of how the tax system was being administered. Why, for example, were wealthy taxpayers living in the Los Angeles area in fiscal year 2000 seven times more likely to be audited than similar taxpayers living in New Jersey, West Virginia, Virginia, Delaware, Maryland and Georgia? (See table.) Why, in the same year, were large corporations based in northern New York were seven times more likely to be audited than those headquartered in Delaware-Maryland? (See table.)

Such analyses helped IRS managers determine whether the regional distribution of employees was appropriate. They served as the basis for studies by the General Accounting Office and Congressional hearings. They gave the public hard information which they could present to their senators and representatives.

But now, because of sweeping organizational changes and agency decisions to withhold critical data, information about many aspects of how the IRS is enforcing the law in different part of the country has unfortunately disappeared. This has happened even though IRS Commissioner Charles O. Rossotti has spoken out about the importance of reducing regional variations. In a policy statement he personally wrote shortly after being appointed as commissioner -- Modernizing Americaís Tax Agency -- Mr. Rossotti noted that applying the law with integrity and fairness was an essential agency goal so that everyone who was voluntarily meeting their tax obligations would have confidence that their neighbors and business competitors were also complying.

TRACís examination of IRS enforcement data shows that erratic enforcement of the tax laws has been a serious problem that has plagued the agency for almost three decades. It thus seems highly unlikely that the decision of the agency to stop collecting relevant information about this issue will lead to a magical cure. By all possible means however -- including a focused effort under the Freedom of Information Act -- TRAC intends to continue pressing the IRS for this essential information.

In addition to its various administrative powers to require the payment of taxes and to audit taxpayers, the IRS also is authorized to initiate criminal actions against knowing violators. Because criminal prosecutions can lead prison, this process in some ways is the most serious of agencyís possible sanctions. But its cases must be brought in federal court by federal prosecutors. As a result, the Justice Department maintains records about the criminal and civil enforcement activities by the IRS.

These records -- which are kept by each of the U.S. Attorneys -- indicate wide regional variation in the criminal enforcement activities by the IRS. In relation to population, for example, there were 17 times more IRS prosecutions in Hawaii than in Northern Florida (Pensacola). It makes intuitive sense that Nevada would rank among the ten most active districts when it came to IRS criminal prosecutions. It is less clear, however, why North Carolina West (Asheville), Michigan West (Grand Rapids) , Iowa South (Des Moines) and Wyoming (Cheyenne) would also be in the top ten. [See also district rankings on criminal referrals for prosecutions and criminal convictions.]

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