HOUSTON, July 27, 2011 /PRNewswire/ -- While the debate over increasing the United States debt limit rages, the IRS is facing a serious conundrum in managing fraud and collecting revenue, according to Patrick Cox, CEO of TaxMasters (TAXS), the leading tax compliance and repayment services provider in the nation.
The National Taxpayer Advocate recently published findings from a study of refundable tax credits in a written statement to the Subcommittee on Oversight with the Ways and Means Committee. While the Taxpayer Advocate Service (TAS) was looking into multiple refundable tax credits, the majority of the report focused on the earned income tax credit (EITC).
"At the heart of the problem, is that the IRS assumes it wins audits in EITC cases because taxpayers are fraudulently claiming the credit. However, the Taxpayer Advocate believes the IRS wins audits because low-income Americans who claim the EITC do not know how to respond to protect their interests," said Patrick Cox, CEO of TaxMasters. "To put this in perspective, 79.1 percent of all IRS audits are conducted on returns with adjusted gross income of less than $75,000. Over 50 percent of those involve incomes under $25,000, which is where the EITC comes into play. If you claim the EITC, you are twice as likely to be audited."
As early as 2004, the National Taxpayer Advocate reported that IRS audit results did not accurately reflect a taxpayer's eligibility to claim the EITC. Rather, she asserts, audits merely show that the taxpayer flunked the IRS audit process.
"When a taxpayer receives a notice from the IRS denying an EITC payment or asking for documentation, too often the taxpayer simply does not respond and the IRS automatically assesses additional tax liability," said Cox. "Furthermore, the National Taxpayer Advocate has repeatedly stated that taxpayers who used tax representatives to refute the audit are nearly twice as likely to be found eligible for the EITC, compared with taxpayers who faced an IRS audit alone."
EITC overpayments for 2010 were estimated by the IRS to be only $16.9 billion, compared to the overall estimated tax gap of $345 billion, a number the IRS has not updated since tax year 2001.
Cox continued, "The IRS is doing what Congress asked by clamping down on what they see as EITC fraud. The problem is that current IRS audit procedures deny or reduce EITC payments to taxpayers the program was designed to help. Add to that the fact that EITC overpayments amount to less than five percent of the tax gap and you have a great deal of time, energy, and people-hours being spent on audits that yield only minor additional revenue. By comparison, the IRS estimates over 82 percent of the tax gap comes from unreported income."
About TaxMasters, Inc.
TaxMasters, Inc. (OTCBB: TAXS) is the first publicly traded tax representation firm in the United States. Started by Patrick R. Cox in 2001, TaxMasters offers a full suite of compliance and repayment services to taxpayers across the country facing seemingly insurmountable tax problems and substantial federal tax debt. Tax services from TaxMasters include IRS consultations, tax return preparation, settlement analysis, and assistance with IRS automated collections, Revenue Officer involvement and collection due process.
Employing over 250 people, TaxMasters leverages the expertise of ex-IRS agents, enrolled agents, attorneys, CPAs, and sales consultants ready to counsel and assist the US taxpayer with their specific tax problems today. TaxMasters is not a law firm or a CPA firm.
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