employee expenses that are out of the ordinary for your income range, that would
attract the interest of the IRS as well."
The bottom line, according to the experts: People who take unusually large deductions for their income get a high score. Also, business owners who claim unusually large expenses for the size and type of their business get a high score.
"I had a case here where the person made about $40,000 and they claimed $25,000 of employment-related expenses," said Elizabeth Maresca, a former IRS lawyer who now teaches law at Fordham University. "Most people don't spend $25,000 to earn $40,000. That's an unusual number."
DIF scores can vary across industry, according to the study by the taxpayer advocate. For example, people who owned construction and real estate rental companies were more likely to have high scores. Lawyers, accountants and architects and people who provided other professional services were more likely to have low scores.
Olsen said construction and real estate rental companies probably deduct more expenses that are not independently reported to the IRS. The IRS does not like those kinds of expenses because they are harder to verify without an audit.
"Construction for sole proprietors has been historically a cash business," Olsen said.
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.
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
Most Popular Stories
- Apple Wants Samsung to Pay $22M for Patent Dispute Legal Bills
- Twitter Coming to Phones Without Internet
- NASA Fellowships, Scholarships Bring Diversity to Workforce
- Dish Network Leads 2013 Top 50 Advertisers List
- Networks Vie for U.S. Hispanic TV Viewers
- Ad Counts Rise in 2013 for Hispanic Magazines
- Entravision Initiates Quarterly Cash Dividend
- Jobs Report Brings Cheer As Unemployment Drops to Five-year Low
- Starbucks Gets Grinchy; No Gingerbread Lattes for Tampa Customers
- Warner Bros. Unleashes 'Hobbit: Desolation of Smaug' Merchandise