IRS Cracks Down on False Tax Credits

Federal prosecutors indicted a man in Philadelphia for falsely claiming the first time homebuyers credit on his tax return. Elsewhere in the country, IRS and federal prosecutors began filing lawsuits against tax preparers for assisting taxpayers in claiming false homebuyer and earned income tax credits.

In recent weeks, the feds have taken action against preparers and taxpayers in Philadelphia, Texas, Tallahassee, Peoria, Georgia, Arizona, Missouri, Memphis, South Carolina and Alabama. As the tax filing season heats up, prosecutors will undoubtedly announce even more indictments.

Prosecutions are somewhat rare but civil actions and assessments for back taxes, interest and massive penalties are the norm. Often the interest and penalties alone greatly exceed the amount of tax.

People in lower income brackets usually commit fraud involving the earned income tax credit but fraud involving the homebuyer credit has been more widespread.

Generally in false tax credit cases the government only takes the preparer to court. That doesn't mean that he person claiming the credit gets a pass. If you are caught, expect an audit and a large bill from the IRS. In certain cases, the IRS will also prosecute those who falsely claim the credit. Knowingly filing a false tax return is a felony and could result in prison.

What should you do if you already filed a false return? Don't worry, you are not alone. Each year thousands of people have second thoughts after filing a false return. If that describes you, contact a tax attorney. The IRS generally does not prosecute those that come forward voluntarily and make amends. In many cases you can also reduce penalties by coming forward first. If the IRS finds you first, however, all bets are off.

How likely are you to get caught? The Earned Income Tax Credit law has been on the books since 1975. To claim the credit you must list the social security numbers of your children. Common scams such as making up social security numbers, listing kids on multiple returns and similar schemes are easily detected by IRS software. In other words, chances are high that you will be caught.

The first time homebuyer credit is new, that law was passed less than 3 years ago and expires for the 2010 tax year. Will you get caught if you cheat? It's hard to say but the penalties are quite high if you do.


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Mahany & Ertl is a full service law firm concentrating in tax and asset recovery matters. Tax representation includes tax amnesty, audit defense, tax court litigation, collections and criminal tax defense. The author, Brian Mahany, is a former revenue service commissioner, enforcement agent and prosecutor. He can be contacted directly at (414) 704-6731.