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June 18, 2007

Use of Tax Fraud Resources

IRS Audits

Houston Tax Attorney


The government has limited resources available to detect and prosecute tax fraud. This raises the question of whether it is a better to use our limited government resources to pursue taxpayers whose conduct barely amounts to tax fraud or if it is better to use government resources to pursue taxpayers who are blatantly committing tax fraud?

The United States v. Turturro case provides a good example of the blatant tax fraud type of case. The Turturro case is similar to other cases where one or more prisoners submit false tax returns with the hope of obtaining federal income tax refund checks from the US Treasury.

According to the court:

Turturro mailed the names and social security numbers to his wife, who prepared the returns, mailed them to the IRS, and received and cashed the refund checks. Turturro instructed his wife where to send the refund money after it arrived and how to look for bankrupt companies to use on the W-2 forms. When his wife withdrew from the scheme, Turturro recruited another woman to prepare the returns in her place.

As taxpayers become more and more sophisticated – especially as technology and the internet help disseminate information – this sophistication of this type of blatant tax fraud will no doubt increase.

For example, where the prior prisoner tax fraud cases involved prisoner tax information, the Turturro case involved bankrupt corporation tax information, and in the future it might involve deceased taxpayers [using information culled from the local probate records], small corporations that were sold to third parties via asset sales and not as stock sales [culled from state corporate filing records], or even international corporations [possibly those that have ceased doing business in the US].

This type of blatant tax fraud is more visible to the public and, theoretically, easier to detect and secure convictions for. Although, it is unlikely that these public convictions will deter taxpayers who are thinking about committing less blatant tax fraud from committing tax fraud.

This type of blatant tax fraud probably costs [in terms of tax revenues] the government much less than lesser conduct that barely rises to the level of tax fraud — such as sophisticated corporate tax planning and tax reporting.

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