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Tax Stats: January 2013

Our monthly collection of statistics from the world of tax, from Beyond415

Our seventh stat for January looks at why the IRS loves the Post Office.

A recent Government Accountability Office study showed that correspondence (mail) audits are much more cost-effective and drive more revenue and coverage compared to field audits.

Source: Beyond415; GAO Report, "Tax Gap: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources," December 2012

In 2010, 33.1 percent of taxpayers filed Schedule A, Itemized Deductions, when filing their Form 1040. The most prominent Schedule A expenses were taxes, interest and contributions paid.

Source: Beyond415; 2010 IRS Statistics of Income estimated data line counts for individual tax returns (Rev. 11-2012)

The IRS has long cited refundable credits as an abuse area, because the credits can reduce a taxpayer's total tax liability to zero, plus provide a cash payment for any remaining credit amount. According to a 2012 report by the Treasury Inspector General for Tax Administration, the IRS estimates that since 2003, between $99 billion and $119 billion has been erroneously paid in the Earned Income Tax Credit, which is one of the most prominent refundable credits.

For 2010, three refundable credits were most prominent for the 142 million individual returns filed.

Source: Beyond415; 2010 IRS Statistics of Income estimated data line counts for individual tax returns

The American Taxpayer Relief Act of 2012 averted the so-called "fiscal cliff." It also extends the American Opportunity Tax Credit through 2017. This education credit provides qualifying parents and students up to $2,500 in tax credits per eligible student for qualifying college expenses paid in the student's first four years of post-secondary education. The 10-year cost of this credit to the government will be $67.2 billion.

Source: Beyond415; HR 8, American Taxpayer Relief Act of 2012; 2009 and 2010 IRS Statistics of Income estimated data line counts for individual tax returns

Under-reporting (understating income and/or overstating deductions and credits) accounts for $376 billion out of the $450 billion a year in revenue lost to the U.S. Treasury. A recent Government Accountability Office study quantified how much it costs the IRS to conduct post-filing compliance activity related to under-reporting. Better information systems and more information statements allow the IRS to use much less expensive compliance methods.

The chart above compares the costs of the three most common compliance methods used by the IRS to curb under-reporting.

Source: Beyond415; GAO Report, "Tax Gap: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources," December 2012

The number of general fraud investigations initiated by IRS Criminal Investigations has gone up, but even more important is the increase in the number of investigations that lead to actual recommendations to prosecute.

Source: IRS Statistical Data

The IRS is both investigating more allegedly abusive tax preparers, and recommending more of them for prosecution.

Source: IRS Statistical Data

When it comes to abusive tax preparers, the IRS is bringing more indictments and information -- and getting more convictions.

Source: IRS Statistical Data



Most Outrageous Tax Deductions of 2015

The Minnesota Society of Certified Public Accountants recently surveyed its CPA members in public accounting on the most outrageous tax deductions clients tried to take on their tax returns. Their responses included everything from pets and weddings to cars impounded by the police.

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