IRS Cracking Down on Fraudulent Tax Filings

IRS Cracking Down on Fraudulent Tax Filings

by Lee Avery on September 9, 2011

The Internal Revenue Service has been catching people in the act of trying to pull a fast one on the government more often than ever. With the economy out of a recession, but still threatening to jump back into those murky waters, many people have tried to coax a little more refund, or a little bit smaller payment in 2011. According to an audit by the Treasury Inspector General for Tax Administration, the IRS was able to identify 335, 341 fraudulent tax returns in 2011, a 181 percent increase from the previous year.

Yes, 181 percent increase in one year. “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,” says Tim Gagnon, an assistant academic specialist of Accounting at Northeastern University. “100 extra dollars really makes a difference to people now.”

One of the most common areas of fraud in tax filings stems from over-claiming on the Earned Income Tax Credit. The EITC is often the largest source of refund money for low-income parents. Claiming a lower income than is truthful is a common way of getting more money, while others even try to claim children they do not have.

In early September of 2011, police arrested a California woman for claiming 20 children on her tax return, replete with their own social security numbers. Putting the “octo-mom” to shame, the fraudster tried to collect a refund of over $300,000. She now faces maximum sentence of 18 years in federal prison and a maximum fine of $750,000.

A man in Illinois was also convicted of tax fraud. The owner of three gentlemen’s clubs in Chicago, he tried to decrease the taxes he owed by hiding $12 million in cash in a warehouse.

Another reason cited for why the amount of tax fraud cases has gone up so drastically may actually be a bit of good news: The IRS is getting better and more efficient at catching fraud. Prosecution recommendations from the IRS rose by 18 percent in 2011, while the average time spent on each claim dropped by 9 percent. According to IRS data, the average 2009 investigation took 401 days to complete. That amount dropped to 365 in 2010.

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