IRS report shows many of biggest tax cheaters live in wealthy areas


A new report from the Internal Revenue Service shows that some of the nation’s wealthiest areas are also home to many of the nation’s biggest tax cheats.

For millions of procrastinating Americans, April 15 has unofficially become known as “Tax Day,” the last day in which individuals can file their tax returns before missing the national deadline.

We may not particularly enjoy filing our taxes, but most people say we should still be honest. A 2006 Pew Research Center poll found that 79 percent of people think it’s morally wrong to cheat on taxes.

Nonetheless, not everyone is completely honest when filing their tax returns. And some people choose to not file any return at all. But where do most offenders call home?

According to a report from the National Taxpayer Advocate, a division of the IRS, the biggest offending areas per capita are: Los Angeles, San Francisco, Houston, Atlanta and our nation’s capital, the District of Columbia.

That’s right, the same place where our national tax laws are crafted is also one of the least honest when it comes to abiding by those same laws.

In addition, as the Associated Press notes, many of these offending areas are also some of the nation’s wealthiest, including two California destinations, Beverly Hills and Newport Beach.

“I imagine it’s just a matter of them going where they think the money’s at,” Steve Rosansky, president and CEO of the Newport Beach Chamber of Commerce, told the AP. “I guess if I was running the IRS I’d probably do the same thing.”

Conversely, some of the most “honest” taxpaying areas included: the Aleutian Islands in Alaska, Portersville, Ind., Somerville, Mass., and Mott Haven, located in the Bronx borough of New York City.

“I’d like to think we’re not alone in terms of the civic engagement of business people,” Stephen Mackey, president and CEO of Somerville’s Chamber of Commerce, told the AP. “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.”

A 2012 story from Life’s Little Mysteries says that because most individuals have their taxes automatically deducted from their employers, they are unlikely to cheat on their taxes. And this seems to align with the new IRS report, which found that construction company owners and real estate businesses were more likely than others to underreport annual income.

The IRS says that underreporting costs the federal government about $250 billion each year in income.

About 1 percent of taxpayers are audited each year, based on a secretive computer scoring method used by the IRS called the Discriminant Inventory Function (DIF). On its website, the IRS says the DIF, “assigns a numeric score to each individual and some corporate tax returns after they have been processed. If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability.”