Fraudulent tax returns surge 181% – Ellijay, GA (Jeff Fouts, Tax Help Attorney.com)

Here’s a simple truth about personal tax returns in a bad economy. When money is tight, tax fraud goes up.

But how much?

According to the Treasury Inspector General for Tax Administration (TIGTA) who monitors the IRS, 335,341 2010 tax returns proved to be fraudulent, an increase of 181% over the prior year.

“While the IRS has become more effective in its screening process, a weak economy has also driven more people to cut corners, said Tim Gagnon, assistant academic specialist of Accounting at Northeastern University.

“When the economy gets really bad, people get more touchy about how much they’re paying in taxes and look at where they think they can push the envelope a little more,” said Gagnon. “100 extra dollars really makes a difference to people now.”

Many taxpayers tried to boost their refunds or reduce their tax liability by claiming deductions and credits they didn’t qualify for, TIGTA found.” – Blake Ellis, Blake Ellis CNN Money

Here are the highlights:

• More taxpayers are abusing the Earned Income Tax Credit.
• People are claiming children on their tax returns they don’t have.
• People are also ‘adopting kids’ to get credit for the whopping $13K adoption credit, when no actual adoption takes place.
• Qualify for the first time home buyer credit? The sizable eight thousand dollar write off is inspriring many to claim the credit when the date they purchased their house doesn’t qualify them to.
• Buy the Plug-in Toyota Prius in 2010? Excellent, you qualify for the Qualified Plug-in Electric Drive Motor Vehicle Credit. But not so for the Hybrid Gas/Electric Prius that most people buy and claim for the special vehicle credit.

Why is the IRS catching more tax cheats?

Many argue that it’s the same reason more people are cheating – lack of money. The IRS is ramping up enforcement because they need more revenue. They understand that bad economies trigger more fraudulent returns. Following this logic, the IRS figures that ramping-up auditing activities will yield bigger dividends than usual. Sounds like those old movies that show the bank robbers targeting a busy bank on payday for their big heist!

There are other reasons the IRS is catching more fraudulent returns

“The IRS is also getting more efficient at reviewing tax returns and identifying errors or false information, thanks to the increase in electronic filing. The number of e-filed returns surged to a record high this year, topping 100 million for the first time in history — a nearly 9% increase from last year, according to the IRS.

When taxpayers file their taxes electronically, it’s much easier for the IRS to analyze them, said Gagnon.”

Is there any good news?
Yes, you can fix most any tax problem by amending past returns, along with paying back taxes and penalties. I know you are probably scratching your head right now and wondering how that could be good news.

Negotiate a lower tax bill: In some cases you can negotiate a lower tax bill for the very reason you fudged on your taxes in the first place – lack of money. If you cant afford to pay, and can document it, your chances are greater that the IRS will accept a compromise. Even if you can’t qualify for a lowered tax bill (called an ‘offer in compromise’) you’ll likely qualify for a monthly repayment plan that is manageable on your budget, while avoiding tax levies or your paycheck being garnished.

If you’re going up against the IRS, consulting a tax attorney can be a wise move. Sure, I’m a tax attorney so that advice is self serving, but consider this: a tax attorney is the only one who can offer you the protection of attorney-client privilege, while also representing you before the IRS. Many tax attorneys are also CPA’s or have expert CPA’s on their staff with financial expertise, so you get both the tax law and expert financial advice you need in one place. Even if you decide to represent yourself, paying for an hour or two of an attorney’s time to get some questions answered while under the attorney-client safety net is a solid defensive tax strategy.

With the IRS getting better at their jobs all the time, you want a team on your side, consider ours.

Until next time,

Jeffrey I. Fouts, Tax Attorney
You can put off your tax problem, or put us to work.

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer (Ellijay, pop. 1,584) not some fictional marketing character. I represent tax payers before the IRS in all 50 states. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C. My competitors covet my Google ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a small, tireless staff. You can put off your tax problem, or put us to work.

Link to Treasury Inspector General For Tax Administration, (TIGTA) Report cited in this post