Falsely Padding Deductions: A Prime on IRS’ “Dirty Dozen” List of Scams

Say No to falsely padding deductions

The Internal Revenue Service (IRS), in many cases, does not have the resources to verify every deduction reported on the tax returns it receives from taxpayers. Many taxpayers take it as an opportunity to falsely inflate deductions or expenses on their returns. As a result, they underpay what they owe to the government and receive larger refunds. Every year, a number of taxpayers fail to resist the temptation of fudging their income-related information, which explains the inclusion of falsely padding deductions in the IRS’ Annual “Dirty Dozen” List of Tax Scams. Let’s take a closer look at the situations that bring a taxpayer under the scanner of the IRS, and may lead to serious consequences if the convict is found guilty.

Gross Valuation Misstatements

The charitable deduction for property donations is one of the deductions that uses estimated property values as the benchmark. Therefore, if you overestimate the value of your property, the deduction will be more. For instance, if the overestimation is 150 percent or more than the value of the property and if you underpay taxes by more than $5000, the underpayment is considered to be the consequence of a gross valuation misstatement. In such a situation, the IRS increases the tax you owe by 20 percent of the underpayment. If, however, you report the value of your property at 200 percent or more of its original value, the penalty rises to 40 percent.

Disregard or Negligence

If the tax underpayment is the result of reporting a false deduction, or there exists an incorrect tax item due to your negligence or disregard of the tax law, the IRS imposes a 20 percent penalty to your tax underpayment. Irrespective of the amount of the underpayment, the taxpayer is required to pay a penalty if they fail to comply with the tax code or carelessly prepare the tax returns without accurate records to support the claimed figures. The penalty may not apply, if you commit a “mistake” with any of your deductions. In addition, persuading the IRS that there was a fair cause behind taking the false deduction can help eliminate or reduce the penalty charges.

Substantial Underpayments

If you take a deduction that you are not entitled to receive, which allows you to underpay your taxes, the IRS can increase the amount you owe by 20 percent of the underpayment. For individuals; if the IRS determines that a taxpayer has filed a “frivolous tax return”, the agency may impose an underpayment penalty of up to $5000. To be considered as a frivolous tax return, the application must not include enough information to figure the correct tax amount, or clearly exhibit that the person is reporting inaccurate figures.


In the words of IRS Commissioner John Koskinen, “Taxpayers should file accurate returns if they wish to receive the refunds that they are entitled to, and should not gamble with their taxes by padding deductions on their tax returns.” Therefore, it would be safe to say that those who think they can get away with the mischief of falsely padding deductions must think again. If they need any help, taxpayers can use the IRS Free File option to prepare and file their tax returns and claim tax benefits according to their eligibility. If you or someone you know is facing IRS related problems, feel free to give us a call for a no obligation consultation. You can also fill out our contact form and we will take it from there.

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