Identifying potentially fraudulent tax returns


The Dallas IRS auditing staff, concerned with identifying potentially fraudulent tax returns, believe that the probability of finding a fraudulent return given that the return contains deductions for contributions exceeding the IRS standard is .20. Given that the deductions for contributions do not exceed the IRS standard, the probability of a fraudulent return decreases to .02. If 8% of all returns exceed the IRS standard for deductions due to contributions, what is the best estimate of the percentage of fraudulent returns?

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Basic Statistics: Identifying potentially fraudulent tax returns
Reference No:- TGS0845090

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