According to WatchDog.org, Adams County residents were audited by the Internal Revenue Service at a grater rate than similar jurisdictions in Ohio. The report comes after an analysis by the website 24/7 Wall St.
24/7 Wall St. reviewed the tax return audit rates for more than 3,000 counties, equivalent jurisdictions and independent municipalities in order to pinpoint where audits are the most common in each state. Nationally, the IRS audits about 7.7 returns for every 1,000 returns filed, the study said. The audit rate for Adams County was 8.0 per 1,000 tax returns.
The owner of Campbell’s Consulting, Mary Jane Campbell said she wasn’t surprised by the report. Campbell files several thousand returns each year and offered her opinion on the reason why Adams County taxpayers were being audited at a higher rate. “The IRS scores returns filed by giving them a DIF score (Discriminant Inventory Function System) which is computer generated. The higher the score, the greater your chance of being audited,” said Campbell. “The IRS also computers a UI DIF which estimates the chances of the filer having unreported or under-reported income. The greater the scores the better your chance of an audit.”
“A close friend was audited who lives north of Columbus,” said Campbell. “The first thing the auditor said to him was he didn’t believe he could live on what he was making. In that case, the person was self-employed and they included Columbus when computing the average cost to live for the area. He passed with flying colors, but his conversations with me proved to me the formula is flawed.”
Campbell also explained that the cost of living was very important to IRS auditors. “It is cheaper to live in Adams County than Hamilton County yet the average income there figures into our scores, so therefore our DIF scores are always higher. Also, the Power Plants closing and other recent job losses recently have affected out rates,” said Campbell.
Campbell continued, “Whenever someone claims the Health Coverage Tax Credit such as the displaced workers from our closed power plants, receives a supplement via healthcare.gov or is poor and receiving the earned income credit, they have a much greater chance of being audited. There are paper audits, where the IRS sends you a love letter and asks for additional information and then there are full audits. Most of the full audits are for people who are self-employed, have trusts or other tax shelters, have large incomes or write off large deductions. The Earned Income Credit (EIC) has been a focus of the IRS and who is eligible for the EIC, low-income families. Therefore people in Adams County are going to have higher DIF scores than people in Hamilton County because of the computer formula,” said Campbell.
According to Watchdog.org, the poverty rates for 43 out of the 50 jurisdictions listed by 24/7 Wall St. were higher than the state’s overall poverty rate, the analysis found. That goes against common perceptions that wealthier Americans are more often targeted in IRS audits, according to the study.
The analysis pointed to a 2018 report by the nonprofit group ProPublica that found low-income, working-class households claiming the earned income tax credit are disproportionately audited, the study said.
“The tax cuts this year saw the loss of many deductions for the working person,” said Campbell. “Unreimbursed work mileage, unreimbursed job expenses, moving expenses, union dues and job search activities were all removed from Schedule A. For the lower income workers, this was a bigger financial blow than the additional little bit of money added to their paychecks. Until the IRS starts excluding metro areas from their formula when looking at rural areas, the results will always be as this article shows. Therefore, save your receipts, tax documents and make sure you report all income.”
Adams County has a median household income of $36,320 and a poverty rate of 23.8%. The percentage of residents in Adams County with bachelor’s degrees is 12.1%.