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Tax fraud on the rise says the Internal Revenue Service

Many in Alameda are breathing a sigh of relief now that tax day is behind us. For some, the refunds will be processed shortly. For others, their tax payments are about to clear. For yet others, they may get a notice to provide additional information.

The Internal Revenue Service is struggling with tight funding just as many consumers are. In light of that budget squeeze, the IRS is turning some of its attention away from tax audits and toward the growing problem of tax fraud.

Last year the IRS processed in excess of 234 million returns worth about $2.4 million. Even so, the IRS estimates that there is a tax gap of $385 billion due to a combination of taxpayer mistakes and taxpayer fraud.

According to the IRS, it is combating the problem in part by using computer technology more fully. Tax returns are scanned and if a tax return rises above a certain threshold amount, it may raise a red flag and trigger an audit. For example, a red flag could be non-cash charitable contributions that are more than a specific percentage of income.

The IRS is facing a number of issues concurrently. Reliable sources say that staff has been cut back, while fraudulent tax returns using stolen identities are on the rise. Even so, last year, the IRS estimates that it saved $14 billion in refunds related to fraudulent tax returns.

Assets and income sheltered in offshore bank accounts is still a problem for the IRS. Last year $4.4 billion was identified in offshore accounts and subjected to taxation.

Taxpayer error which is unintentional, can still lead to penalties and interest for unpaid taxes. A qualified professional can help taxpayers avoid these sorts of mistakes. This in turn could give the IRS more resources to combat intentional tax fraud.

Source: USA Today, "IRS struggling to combat rise in tax fraud," Kevin McCoy, April 15, 2012

1 Comment

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