What the IRS is doing about Tax Fraud

Posted on November 7, 2022

What the IRS is doing about Tax Fraud

Every tax season, we hear about tax scammers and fraudsters trying to either dupe taxpayers or the IRS. The only reason why some people indulge in tax crime is to get easy money. The IRS has been fighting a long battle with tax fraudsters, but this year, they took extensive steps to ensure that tax fraud and tax evasion is not allowed to flourish.

Tax Fraud Alerts and Punishment

 Tax fraud picks up during the tax season, so the IRS issues tax fraud alerts to inform taxpayers about how tax frauds operate. The IRS’ annual Dirty Dozen Tax Scams list allows taxpayers to educate themselves about the various methods tax fraudsters use to cheat both them and the IRS. In 2013, the top tax scam was identity theft, followed by phishing, return preparer fraud, hiding income offshore, “free money” from the IRS or scams involving social security, and  impersonation of charitable organizations.

The punishment for tax fraud largely depends on the severity of the fraud. In cases of tax fraud, punishment is given in the form of penalties and/or imprisonment.

Tax Evasion

Tax evasion is a major concern for the IRS. Billions of tax money is lost because of tax evasion every year. To prevent tax evasion and bring the evaders under U.S. jurisdiction, the IRS made treaties with many countries under Foreign Account Tax Compliance Act (FATCA) to build transparency in financial activities of U.S. taxpayers in other countries. According to the IRS:

  • FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts
  • FATCA focuses on reporting:
  • By U.S. taxpayers about certain foreign financial accounts and offshore assets
  • By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest
  • The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting.

To help taxpayers get back into compliance, the IRS is also running the Offshore Voluntary Disclosure Program (OVDP). Under it, taxpayers can get back into tax compliance with reduced penalties and minimum possibility of imprisonment.

Avoid Tax Frauds

Knowledge is essential for taxpayers to protect themselves from tax frauds. Most taxpayers can avoid falling a victim to tax frauds by keeping their tax information safe from strangers, both online and offline. They must keep themselves informed about the methods tax frauds use to extract their tax information, so that they know a fraud when they encounter it.