According to reports, the number of taxpayers attempting to claim inflated refunds was on the rise. When the economy falters people start looking for more cash. And that means more people are willing to “push it” on their taxes. Good luck, when the audits start rolling in.
From Yahoo Finance:
The IRS identified 335,341 tax returns claiming $1.9 billion in fraudulent refunds as of March 4, 2011, according to the findings of an audit conducted by the Treasury Inspector General for Tax Administration. That's a whopping 181% increase from the same period last year.
While the IRS has become more effective in its screening process, a weak economy has also driven more people to cut corners, said Tim Gagnon, assistant academic specialist of Accounting at Northeastern University.
"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," said Gagnon. "100 extra dollars really makes a difference to people now."
Many taxpayers tried to boost their refunds or reduce their tax liability by claiming deductions and credits they didn't qualify for, TIGTA found.
For example, the Earned Income Tax Credit, aimed at helping lower-income taxpayers, has been a large source of fraud, with people falsely lowering their income to qualify or claiming children they don't have. The IRS estimates that 23% to 28% of EITC credits are wrongfully paid to Americans every year, totaling $11 to $13 billion.