Tax Gap Estimates for Tax Years 2008-2010

IRS Statement on the Tax Gap Update

The IRS periodically estimates the tax gap, which gives a broad view of the nation’s compliance with federal tax laws. The new study covers tax years 2008-2010. The report finds that there has been no significant change in the amount of the tax gap or the rate of compliance since the last report was issued for tax year 2006.

The average annual tax gap for 2008-2010 is estimated to be $458 billion, compared to $450 billion for tax year 2006. IRS enforcement activities and late payments resulted in an additional $52 billion in tax paid, reducing the net tax gap for the 2008-2010 period to $406 billion per year. The voluntary compliance rate is now estimated at 81.7 percent compared to the prior estimated rate of 83.1 percent. After accounting for enforcement and late payments, the net compliance rate is 83.7 percent.

The small increase in the estimated size of the tax gap and small decrease in the voluntary compliance rate are largely attributable to improvements in the tax gap estimation methodology, and do not represent a significant change in underlying taxpayer behavior. The changes also reflect the overall decline in the nation’s tax revenues due to the severe recession during the time period covered by this study, as well as changes in the mix of income sources that have different compliance rates.

A high level of voluntary tax compliance remains critical to help ensure taxpayer faith and fairness in the tax system. Those who don’t pay what they owe ultimately shift the tax burden to those who properly meet their tax obligations. The new tax gap estimate updates long-standing research findings that information reporting and withholding are strongly associated with higher levels of voluntary compliance.

The IRS continues to look for ways to keep the voluntary compliance rate high, including educational efforts aimed at preparers and taxpayers, ongoing efforts to improve compliance in the international tax arena, and working with businesses on employment tax issues.

Report: Tax Gap Estimates for Tax Years 2008–2010

Fake IRS call center shut down; IRS Scams to watch out for.

Despite the IRS receiving bad press lately for its bad public relations, this Forbes article highlights efforts to stop the IRS scammers from continuing to con US citizens with fake IRS calls threatening jail time or forfeiture actions.

As stated in the article, the callers pose as IRS officials and demand immediate payment and threatening jail or deportation for those failing to comply.  The article also highlights efforts by IRS to try and shut down this scam, i.e. Treasury Inspector General of Tax Administration’s (TIGTA) reporting of the apprehension of 5 individuals in May 2016 responsible for about $2 million in schemes defrauding 1,500 victims.

In the latest news, authorities in Mumbai, India have arrested 70 call center workers for tax related scams following police raids on call centers in India.  Additionally 750 other call center workers were detained as police continue to investigate.  The reports indicate that 7 call centers were being used to accumulate around $149,835 per day.

The IRS has also highlighted the 12 largest tax scams to avoid in its annual Dirty Dozen:  For 2016, the dirty dozen are (in no particular order) See IRS Website:

1. Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. Though the agency is making progress on this front, taxpayers still need to be extremely careful and do everything they can to avoid being victimized. (IR-2016-12)
2. Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2016-14)
3. Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will never send taxpayers an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS. Be wary of strange emails and websites that may be nothing more than scams to steal personal information. (IR-2016-15)
4. Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Legitimate tax professionals are a vital part of the U.S. tax system. (IR-2016-16)
5. Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to enable people catch up on their filing and tax obligations. (IR-2016-17)
6. Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at their records, or charges fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups where trust is high to find victims. (IR-2016-18)
7. Fake Charities: Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2016-20)
8. Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation of falsely inflating deductions or expenses on their returns to under pay what they owe or possibly receive larger refunds. Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming such credits as the Earned Income Tax Credit or Child Tax Credit. (IR-2016-21)
9. Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is generally limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims generally involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses. (IR-2016-22)
10. Falsifying Income to Claim Credits: Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing big bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution. (IR-2016-23)
11. Abusive Tax Shelters: Don’t use abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2016-25)
12. Frivolous Tax Arguments: Don’t use frivolous tax arguments in an effort to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims Even though they are wrong and have been repeatedly thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2016-27)

If you have specific and credible information of a tax scam, the IRS will pay between 15-30% of the taxes, penalties and interest it collects from the promoters/perpetrators of the tax schemes, or from the beneficiaries of the tax schemes.  Contact us to evaluate your specific and credible information and whether you should file a tax whistleblower claim to receive an award from the IRS.

Not even Federal IRS Employees or Federal Tax Court Judges are Immune to Alleged Tax Evasion

In a bit of shocking news, a former federal tax court judge (Judge Diane L. Kroupa) and her husband were indicted on charges for filing fraudulent tax returns and conspiracy to defraud the United States.  As recounted in a recent Forbes article, the shocking facts in the indictment reflect alleged evasion of taxes and obstruction of justice in the examination/audit of Judge Kroupa as follows:

1. Alleged claimed personal expenses as business deduction including “rent and utilities for the Maryland home; utilities, upkeep and renovation expenses of the Minnesota home; Pilates classes; spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and expenses for vacations to Alaska, Australia, the Bahamas, China, England, Greece, Hawaii, Mexico and Thailand;”
2. Alleged false insolvency claim to avoid discharge of indebtedness income of $33,301;
3. Alleged failure to report income from sale of property in the amount of $44,520;
4. Alleged concealment of records from tax return preparer and IRS compliance officer during an audit in 2006;
5. Alleged submission of misleading documents to an IRS employee in 2012 audit to conceal expenses of Grassroots Consulting; and
6. Alleged understated income from 2004-2010 of $1,000,000 and understated taxes in the amount of $400,000. 

While the indictment and allegations contained in the indictment have yet to result in a conviction for conspiracy and tax evasion, the mere fact that the indictment and charges against Judge Kroupa have been filed in Court reflects that even federal tax court judges may still have allegedly evade taxes and allegedly defrauded the IRS and the United States of taxes allegedly owed.

In other news, based on a recent Tax Court case, a federal IRS Revenue Agent was indicted and plead guilty to tax evasion.  A summary of the relevant facts are as follows:

1. Petitioner Husband was an IRS revenue Agent;
2. Petitioner Husband had side business in which he set up trusts for another taxpayer to reduce taxes but was used to allegedly embezzle funds from the other taxpayer;
3. Petitioner Husband allegedly embezzled funds from other taxpayer;
4. Petitioner Husband was indicted and initially plead guilty to tax evasion related to the alleged embezzled funds because he failed to report the income associated with the alleged embezzled funds;
5. Petitioner Husband tried to recant plea agreement.

In the Tax Court case, the Court determined that while the Petitioner Husband plead to tax evasion and failed to report income for 2003 in the amount of $252,726, the plea does not support improper calculations by another IRS revenue agent that analyzed the tax deficiency of Petitioner Husband because the other IRS revenue agent failed to account for amounts repaid to the other taxpayer by Petitioner Husband.  The Tax Court ultimately determined that there was no deficiency or penalty liability for 2003.  Despite the Tax Court’s holding that there was no deficiency, the facts in this case reflect that even a federal revenue agent is not immune from allegedly under-reporting or allegedly failing to report his/her tax liabilities.

Both cases show that federal employees and federal tax court judges are not immune from committing alleged tax evasion or other tax violations.  Therefore, if you have specific and credible information (specific documents outlining the tax evasion or other tax violations) on any individual which would result in taxes due in excess of $2,000,000, contact us to discuss filing an IRS tax whistleblower claim to claim an award and to alert the IRS to the alleged wrongdoing.