Tax Fraud Taxes, Tax Laws Research Paper

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Where individual taxpayers are concerned, the abstruseness and complexity of filing one's taxes can have the impact of obfuscating the legal imperatives driving one's filing obligations. This means that an individual may report his or her taxes inaccurately but without the intention to commit fraud. According to Daily, "Although auditors are trained to look for fraud, they do not routinely suspect it. They know the tax law is complex and expect to find a few errors in every tax return. They will give you the benefit of the doubt most of the time and not go after you for tax fraud if you make an honest mistake. A careless mistake on your tax return might tack on a 20% penalty to your tax bill. While not good, this sure beats the cost of tax fraud -- a 75% civil penalty. The line between negligence and fraud is not always clear, however, even to the IRS and the courts." (Daily, p. 1)

This distinction aside -- and despite the fact that most tax fraud events occur in the hands of private citizens -- certainly corporate tax fraud accounts for the largest sums of money hidden, incorrectly filed and generally withheld from the federal government. Incidences such as those involving Enron, Worldcom, Tyco and Adelphia, among others, demonstrated beyond a reasonable doubt that without proper oversight and scrutiny, corporations have the capacity to be by far the worst offenders. In their respective cases, these firms employed widespread accounting irregularities in order to hide their earnings from the government or in order to over-report their earnings as a way of falsifying stock values. In these instances, the consequences were substantial, with the companies in question filing for bankruptcy, announcing their closure or seeing their top personnel stand trial for tax crimes.

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One common way, del Llano reports, that executives for top-flight firms will commit tax fraud is by 'offshoring' their earnings to keep them hidden from the government. According to del Llano, "any highly compensated professional persons and business owners in the U.S. are being solicited to participate in "offshore deferred compensation plans." The U.S. taxpayer is encouraged to sever an existing employment relationship and substitute an arrangement in which the nominal employer is a foreign "employee leasing" company. The supposed result of this abusive arrangement is that the taxation of a large portion of the professional's or business owner's salary is deferred while he/she gains immediate access to the funds through loans or offshore-based credit cards." (del Llano, p. 1)

Another mode of fraud which has more recently focused on the willful and systematic undermining of American tax law is identity theft. With the dramatic uptick in usage of online tax filing services, the vulnerability of American tax-payers to identity theft and the purloining of social security numbers has become that much greater. Accordingly, McCoy reports on Operation Rainmaker, through which the federal government has netted more than one hundred tax cheats and identity thieves. According to McCoy, "the IRS last year stopped more than 260,000 fraudulent tax returns involving confirmed cases of identity theft, preventing an estimated $1.4 billion in refunds from reaching suspected criminals. Those totals represent a jump from 2010, when the IRS said it stopped 48,966 returns for confirmed identity theft and halted $247 million in related tax refunds." (McCoy, p. 1)

This denotes that the IRS and members of the American public remain in an ongoing push and pull over adherence to tax laws with the public revenue suffering the consequences in the greatest measure.

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