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Fraudulent Tax Surge to 181%

  Sanjiv Gupta CPA  Published 
Fraudulent Tax Surge to 181%

The IRS has been tricked of $1.9 Billion tax refunds on 335,341 tax return claims. Recorded as of March 4, 2011, in an audit supervised by the Treasury Inspector General for Tax Administration, fraudulent tax surge incidents shot up to a shocking 181% rise within a year. Taxpayers are trying out different ways to con the IRS by claiming huge refunds. This has alarmed the Internal Revenue Service. As a consequence, the unit has adopted stricter means this year to screen tax audit papers and issue clearance.

Tim Gagnon, the assistant academic specialist of Accounting Northeastern University, suggests that a weak economy is probably a major reason behind increasing events of fraudulent tax claims. People react sensitively to tax pressure in a downsized economy. They count on every penny to improve their refunds or to curtail tax liability. This they often do by claiming tax- breaks on programs/ credits they did not receive, TIGTA reported.

Popular tax-scam sources are Earned Income Tax Credit, Child tax credit, adoption credit, real-estate or home buyer tax credit and vehicle credit programs.  EITC meant to facilitate lower-income taxpayers has aided as much as 23-28% fraudulent activities. Adoption credit claims sucked out $3.9 million while Homebuyer Tax credit and Vehicle credit also played an active part as smart tax scam sources.

According to the TIGTA report, 88% of tax-return claims were filed by prisoners in 2011. This should have alerted the IRS screening; Gagnon said, as they should have inspected two things: first the source of income for such prisoners and second the risk factors that led the prisoners to file for tax-deduction. 

Apart from intentional fraudulent claims another obvious reason that pushed the scam forward was that laxity on the part of tax-filers. Typically the ones, who filed they're tax- return papers on their own, made numerous mistakes; outdated calculation, incorrect claims, etc. anther consideration is that the IRS introduced a whole new set of Tax rules at the end of the year. By this time most people had already prepared their tax-return documents and had no time to evaluate the new rules. All these together resulted in a Fraudulent Tax surge. 

However, there is always a good side to bad things. The scaling tax-scam incidents will be a wake-up call for the IRS inspectors. Audits through electronic filing have increased by almost 9%. The system will help increase efficiency to better analyze taxpayers' files and identify errors in minimum time.