Nevada taxpayers face extra scrutiny

      As Nevadans rush to meet Tuesday's tax deadline, they have an extra reason to feel stress: The Internal Revenue Service tends to scrutinize income tax returns from the Silver State.
      Nevadans are more likely to face an audit than residents of any other IRS district, according to data gathered in a recent study.
      "I don't doubt that Nevada is at the higher end of the scale in audits," said IRS spokeswoman Marilyn Steen.
      The IRS study was conducted by the Transactional Records Access Clearinghouse, a nonpartisan research organization associated with Syracuse University in New York. It relied on statistics for fiscal year 1995, the most recent available.
      That year IRS officials audited 2 percent of the individual tax returns filed in Nevada, compared with 0.7 percent of the individual returns filed nationwide.
      "Chances of being audited are very limited for anyone," Steen said.
      According to the TRAC data, Nevada ranks third among 90 federal judicial districts for the percentage of IRS criminal prosecutions. Justice Department attorneys prosecuted 35 people for criminal tax violations in Nevada during fiscal year 1995 and 2,319 people nationwide, the data showed.
      "Due to the nature of the economy in Las Vegas, I'm sure that there is a higher than average level of noncompliance," said Tim Lee, chief of the criminal investigation division for the southwest district of the IRS.
      TRAC is presenting its IRS information on a new website, which opened to the public Saturday evening. The address of the site is: http://trac.syr.edu/tracirs/.
      Lee questioned the validity of TRAC statistics regarding criminal prosecutions, which the organization's representatives gathered from the Justice Department and federal courts. He said the Justice Department has a different system for tracking data and may not have listed the IRS on cases its agents investigated as part of a multi-agency task force.
      He said officials from the IRS office of criminal investigation offered to share additional data with TRAC but never heard back from any of the organization's representatives.
      TRAC makes this notation on its website: "The information now being provided the public by the Internal Revenue Service about its criminal enforcement activities is substantially misleading and inaccurate, according to an investigation by TRAC."
      The organization's website claims IRS officials refused to meet with TRAC representatives to reconcile discrepancies in the agency's data.
      "The IRS, of course, demands a high level of data accuracy from all taxpayers," the website states. "Most of the misleading and inaccurate information now being provided the public by the IRS can be found in its annual official report, the Internal Revenue Service Data Book."
      TRAC has included copies of its correspondence with IRS officials, who claim their statistics are correct, on the website.
      Lee -- whose district covers Nevada, New Mexico and Arizona -- said the IRS has compiled no rankings of its districts based on percentage of prosecutions. Nevada made up a single IRS district during the years for which TRAC provided statistics.
      Large amounts of telemarketing and securities fraud may account for the high percentage of IRS prosecutions in this state, Lee said. He also said Nevada's gaming and construction industries have created a cash economy, which lends itself to fraud.
      "There's just more opportunity there, when you're dealing in cash, to evade taxes," he said.
      Lee said IRS agents in the Southwest district spend about 64 percent of their time investigating income tax violations. He said the agency's narcotics investigations have decreased in the district since the early 1990s.
      Steen said the factors that attract IRS prosecutions in Nevada also create a need for audits.
      For fiscal year 1995, she said, IRS officials assessed $79.9 million in additional taxes and penalties through audits of individual tax returns in Nevada. The total assessment for all audits conducted in the state that year was $98.8 million, she said.
      Steen said those figures justify the scrutiny of IRS officials.
      "They're getting a lot of money out of the audits," she said.
      Scott MacTaggart, a Las Vegas attorney and certified public accountant, said he expects the number of audits in Nevada to begin decreasing in coming years. MacTaggart worked with IRS officials and representatives of the casino industry in 1992 to help negotiate and draft an agreement that allows workers to avoid audits of their tip income by paying taxes on pre-established tip rates.
      "It's been perceived by the IRS and by the employees as a beneficial program," he said.
      MacTaggart said most tip-earners at Nevada casinos now participate in the program. He said similar programs since have been established throughout the country.
      "They're basically guaranteed that their tip income will not be audited, and I think that would substantially lessen the odds that your normal tip-earning employee will be audited," MacTaggart said.
      He said IRS officials now may be focusing on the tip-earners who have opted not to participate in the program. Steen said the program also may be freeing up resources for other types of audits.
      According to the TRAC data, Nevada has had the No. 1 ranking for percentage of audits since at least 1992.
      "I don't think Nevada citizens have been picked on," MacTaggart said. "I think it all relates to the historically recognized fact that a substantial portion or our population -- the people who earn their income through tips -- did not as a group report 100 percent of their income."