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CNN Live At Daybreak

Tax Fraud on the Rise

Aired April 03, 2002 - 05:31   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: And there are just 12 days left to file your federal income tax by the deadline. Officials say half of all taxpayers have yet to file. If you use a tax preparer, be very careful who you pick, as CNN's Brooks Jackson reports.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN SENIOR CORRESPONDENT (voice-over): North Carolina, a sleepy country cross road, a little store where love of country is displayed, but cheating the government was a business.

The store's owner, Charles Peyton (ph), drained the U.S. Treasury of more than $760,000 according to the government. One client was Charles Mooney, who drove 60 miles to consult Peyton (ph) after hearing from fellow factory workers that Peyton (ph) was getting them big refunds.

In an hour's time, Peyton (ph) fixed up returns claiming refunds for Mooney for four past years: $2,800, $3,100, a total of more than $12,000. How? Peyton (ph) just made up deductions. For medical expenses, Mooney had claimed nothing on this original return, but Peyton (ph) put down $3,250. "No receipts needed," he said. Peyton (ph) even put down more than $1,000 in deductions for work clothing.

CHARLES MOONEY, TAXPAYER: I couldn't go to work naked. That was his quote.

JACKSON: But Mooney had doubts, and he drove straight to the local office of the IRS.

MOONEY: Basically, the lady at the IRS office told me "If you send these returns in, you're probably going to jail." So I definitely wasn't going to send them in.

JACKSON: It took more than two years for the government to investigate, charge and convict Peyton (ph). But in late March he was sentenced in federal court to six and a half years in prison. Prosecutors said he had fixed up bogus returns for at least 349 taxpayers.

(on camera): What happened here was tax cheating on a retail level. And there is growing evidence that tax fraud is becoming more and more common. (voice-over): The IRS says it doesn't really know how much cheating is going on or whether it is getting better or worse. But here is what is known; Congress has slashed IRS enforcement. Taxpayers currently can expect a face-to-face audit only once every 628 years, a record low.

Meanwhile, more Americans feel cheating is OK. A poll in 1999 for the IRS Oversight Board showed only eight percent of Americans felt it acceptable to cheat a little on their taxes, and another three percent thought it was OK to cheat as much as possible. But both those numbers were up last year. Now, more than one in 10 says it's OK to cheat a little, and one in 20 feels justified cheating as much as possible.

LARRY LEVITAN, IRS OVERSIGHT BOARD: We're concerned, and we believe that it is probably the case that there is more cheating going on at the present time.

JACKSON: There are lots of crooked tax return preparers like Peyton (ph). The IRS says it has convicted 283 in just four years. And their clients who filed bogus returns have to pay the money back and more -- Prosecutor David Cortes.

DAVID CORTES, ASSISTANT U.S. ATTORNEY: Sometimes the penalty rates and the interest rates are exorbitant. And it often winds up in the taxpayer -- even though he's innocent, the taxpayer winds up paying a lot more than he bargained for.

JACKSON: Honesty is cheaper.

Brooks Jackson, CNN, Greenville, North Carolina.

(END VIDEOTAPE)

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