Associated Press tax reporter Mary Dalrymple tells us that:
… congressional investigators found that 27,000 defense contractors owed a total of $3 billion in unpaid taxes. Auditors at the General Accounting Office, the investigative arm of Congress, studied taxes owed in the budget year that ended Sept. 30, 2002.
The GAO report — available as a .pdf file here — is bluntly titled, "Some DOD Contractors Abuse the Federal Tax System With Little Consequence."
Dalrymple provides some of the highlights/lowlights:
* One custodial contractor owing nearly $10 million in unpaid taxes borrowed almost $1 million from the business and bought a boat, several cars and a home abroad. The Defense Department paid the company $3.5 million in 2002. The business was dissolved in 2003 but continues to submit invoices and receive payments from the Defense Department. …
* A construction company that repaired aircraft hangars at military bases was paid $2.8 million in 2002 while owing over $700,000. The business is under criminal investigation. …Meanwhile, as Helen Huntley of The St. Petersburg Times reports, the IRS is encouraging low-income taxpayers to be sure to file for the Earned Income Tax Credit, because they're really looking forward to auditing you for potential fraud once you do.
"In fact, the IRS has been going after EITC fraud in a big way," Huntley writes, just before quoting an IRS official musing about why more low-income taxpayers aren't taking advantage of the program.
You don't suppose all this talk of cracking down on fraud with audits and jailtime has discouraged anyone from engaging in the complicated filing process, do you?
Low-income taxpayers would be better off creating a paper business and bidding for defense contracts. They're not so picky about fraud, and you won't have to pay your taxes.