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The Treasury Inspector General for Tax Administration recently issued a report indicating that the IRS stepped up its identification of fraudulent tax returns this year. The IRS increased its identification of fraudulent returns 171 percent during the 2011 tax season compared with the 2010 tax-filing season. This means that more California taxpayers will likely face tax fraud-related tax audits than ever before.

Accusations of tax fraud can be hard for any Orange County resident to face and can be especially challenging for professionals whose businesses depend on them maintaining an impeccable reputation. Representation by an experienced tax professional is essential when a taxpayer faces a tax fraud audit because the audit could result in criminal charges or substantial civil penalties and fines.

There are many types of situations which can give rise to tax fraud charges including failing to report all personal or business income or claiming questionable deductions. Questionable deductions can result in large refunds, which the IRS has begun to focus on.

The IRS says that it caught over 775,700 returns that claimed over $4.6 in fraudulent refunds this tax season. Approximately 96 percent of the refunds were blocked before they were issued.

“The IRS takes refund fraud very seriously,” an IRS spokeswoman said in a statement. “We continually work to refine and improve our fraud detection tools.”

A subset of fraudulent returns were issued to prisoners. The IRS audited almost 200,000 prisoner tax returns, which is almost triple the amount of prisoner tax returns screened during 2010. Over $120 million in fraudulent returns have been issued to prisoners since 2004 according to some authorities.

Source: Business Week, “IRS More Than Triples Reviews of Prisoners’ Taxes, U.S. Says,” Nov. 1, 2011