Tax fraud went up 181% for the 2010 filing season, according to the IRS. This large increase in fraud is due to two primary causes: the first is a bad economy, and the second is a push-and-pull from both sides of the tax equation: the government and the people. With a bad economy comes a shortage of money; something both the government and the people must suffer with. Something they do in much different ways.
On the one hand we have the government, who is torn between providing tax incentives to boost the economy and taxing more heavily to pay off their enormous, mounting debt. This, in effect, not only complicates the tax code, but also leaves large areas for fraud to occur come filing season. To counter this, the IRS has been upgrading their systems. More advanced computer programs and paperless filing have allowed the IRS to become much more effective in their screening of tax returns than ever before. Meaning, the IRS is more efficient at catching errors on tax returns.
The people, on the other hand, are struggling to make ends meet. When times are hard an extra $100 is substantial. So people are withholding less now to put food on the table, or they are becoming self-employed and aren’t making estimated payments. Come filing season, when people hear that they owe tax they are now more inclined to cut corners. The IRS found many taxpayers inflating their refunds or reducing the tax they owe by claiming deductions and credits they didn’t qualify for.
Not all of this fraud is the result of unscrupulous taxpayers, though. Many taxpayers simply couldn’t afford to hire a professional to prepare their taxes, often leading to errors. In addition, the tax code changed late December 2009 and many taxpayers may not have been informed of the new guidelines. Plus, a lot of newly self-employed individuals may not have realized they are now subject to a whole new set of rules. One thing is for sure though, now that the IRS is more efficient at finding errors on tax returns, hiring a professional to prepare your tax return this filing season will be worth every penny.
Joshua S. Lemman
