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I came across this interesting study done on the behalf of the IRS Oversight Board. The study asked participants if they felt it was okay to cheat on their taxes. The study itself has been done since 2002 and over the years, the range of people who feel that it is completely unacceptable to cheat on their taxes usually fluctuates between 84% and 86%. In 2009, 84% of respondents said it was unacceptable and fraudulent to cheat on their taxes.

What I find interesting is that in 2003, only 81% said it was unacceptable to cheat on taxes and in 2008, 89% said it was unacceptable to cheat on taxes.

Along with the answer of “completely unacceptable” (the orange bars in the graphic below), somewhere between 6% and 12% believe that it is okay to cheat a little here or there (the light blue bars, below). And 3% to 5% of respondents believe that you should cheat as much as possible.

You can read the rest of the article at the New York Times.

So I went and dug up the number of tax returns filed to see what this meant in real numbers. Let’s use 2008, because we have all the data we need from that year:

According to a report by the IRS, 155 million tax returns were filed.

So here’s what it meant for 2008 tax returns:

  • 89% of respondents, or 137,950,000 tax returns were completely honest.
  • 6% of respondents, or 9,300,000 tax returns had a few cheats here or there in the return.
  • 3% of respondents, or 4,650,000 tax returns were as dishonest as possible.

Those are interesting numbers. Here’s my take on them: I believe in paying less tax, but I believe in doing so legally. The IRS needs to be more understanding with people who are having difficulty paying their taxes, and they need to offer them real options to help them with their tax debt.

Most people with IRS problems want to want to pay their tax debt, but if money is tight, they need the IRS to be more willing to work out an arrangement. Whether that’s a payment plan or a living standards Offer in Compromise settlement offer.

And just as importantly, the IRS needs to create ways to reduce the number of income tax cheaters (13,950,000 tax returns have some form of dishonest response).

By being so tough on honest people who are having trouble paying their tax debt, instead of going after the cheaters, the IRS is not doing its job as well as it sould.

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4 Responses to Cheating On Your Taxes: Real Numbers and an IRS Solution

  1. Regina says:

    I’ve been filing online for past 6 years with turbo tax, they guide you through it and then check for possible form 1040 errors.

  2. Cutno says:

    If your child tax credit is zero, you didn’t pay any tax, so your rebate is $300 for yourself and another $300 for your spouse if you filed a joint return, plus $300 for each child under age 17.

  3. Steadman says:

    I wonder what the ratio is between the cost of compliance and income tax collection and the total tax collected.

  4. shawn meryman says:

    I had been on TurboTax for the last six years, and for the last two years, my brother had joined me with IRS filings. The first year that I did his tax, he was shocked that he got a bigger return than the CPA professionals he had been going to.

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