To determine the extent of tax fraud, the Internal Revenue Service aud

Question

To determine the extent of tax fraud, the Internal Revenue Service audited the current year tax returns of a random set of 1000 individuals. Even though only 10% of the individuals in the group were self-employed (other 90% were working professionals), they accounted for 50% of the fraudulent cases.

For the group above, which of the following would be most useful in assessing whether tax fraud by self-employed individuals may be responsible for majority of the money that the IRS loses every year?

A. The trend of average income of self-employed individuals over the past few years compared to that of the rest of the group.
B. The difference between average annual taxes paid by a self-employed individual and a working professional.
C. The average tax fraud committed by a self-employed individual versus a working professional.
D. The diversity of demographics represented in the group versus that of the nation.
E. The number of women in the group who were working professionals versus self-employed.

egmat · Answer

Just added the OA. Will be providing the OE as soon as I come back (in a few hours)

Reserved for official explanation
Reserved for official explanation

Dinesh2Apr · Answer

Premise :- 10% of self employed accounted for 50% of the fraudulent cases.
total frauds - 200, 100 - self employed, 100 - working professionals 
money lost from 100 self employed > money lost from 100 working professionals.

Based on the premise we can assume that average money lost from self employed > average money lost from working professional

Conclusion(for sake of evaluation) :- Tax fraud by self employed is responsible for majority of loss in money

POE :-
A. This option talks about income levels - OFS
B. This option talks about differences in taxes paid, from this information we will not be able to infer anything about individual unpaid taxes - OFS
C. This is the correct answer, it talks about the fraud levels committed by each. a Yes/No answer will take the conclusion to the extreme choices.
D. Diversity of demographics - OFS
E. Number of women - OFS

IMO :- C

gautam17 · Answer

b in my opinion ,quantum of loss may or may not be related to the number of tax frauds,50% may contribute to 10% of loss to irs and 10% may contribute 90% of loss...

scp · Answer

It should be C.

the number of ppl committing fraud in both groups is same so only the quantum of fraud or average fraud can impact the conculsion.

jkaustubh · Answer

C is the correct option in my opinion

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vigneshceg · Answer

The question here is which of the following would be most useful in assessing whether tax fraud by self-employed individuals may be responsible for  majority of the money that the IRS loses every year ?

Majority of the money - For this average is not the right representation. (Money - average * total number). 
Generalization from the 1000 samples may not be applicable. And for that we need the answer for option D).

Archit143 · Answer

I think its C....We need to evaluate whether tax fraud by self employed may be the reason for the majority of the tas fraud. Hence we need to search for an option that establishes the truth of the number of the self employed people investigated. I mean in real scenario there are 3 partners for a single business group but if we see employed person , he is a single entity being questioned...So if all 3 partners are questioned than the single business is reiterated and hence can wrongly influence the survey.

Archit

Archit

Archit143 · Answer

Its thursday already, No OA ........It was supposed to be posted on tuesday.......Pls post OA...

Archit

gautam17 · Answer

hmmm its friday still no answer.....lets do some critical reasoning about it.why is it so
a)they are very busy.
b)they have forgotten about the question
c)the information about answering on tuesday is a typo
these are some of the assumptions i have come up with...hope they explain the answer soon the suspense is killing me

egmat · Answer

Hi guys,

Just provided the OA. will provide the OE soon.

-Rajat

avik629 · Answer

I support ans D.

What if the sample group is not representative of the complete nation?
As indicated in answer  choice D . Maybe fraud by self employed account for majority of the sample group but not nation, which is more relevant for IRS.

kinjiGC · Answer

I think you missed the " For the group above ". In fact even I missed it.

To determine the extent of tax fraud, the Internal Revenue Service audited the current year tax returns of a random set of 1000 individuals. Even though only 10% of the individuals in the group were self-employed (other 90% were working professionals), they accounted for 50% of the fraudulent cases.

For the group above , which of the following would be most useful in assessing whether tax fraud by self-employed individuals may be responsible for majority of the money that the IRS loses every year?

1. The trend of average income of self-employed individuals over the past few years compared to that of the rest of the group - 
 The trend is not required as we are having the actual data of the group - OFS - Incorrect 
2. The difference between average annual taxes paid by a self-employed individual and a working professional.
 If we don't calculate the average, one person might be a one off case (may be either of the extreme ) so we cannot determine - Incorrect 
3. The average tax fraud committed by a self-employed individual versus a working professional - 
 For the group, this is correct 
4. The diversity of demographics represented in the group versus that of the nation.
 The question is for the group - So incorrect 
5. The number of women in the group who were working professionals versus self-employed.
 Completely OFS

zurich · Answer

The official answer is 3. But in my opinion, the wordings of the answer make it questionable. "The average tax fraud committed" does not give indication whether this is the total number of cases or the total amount of dollar value of the fraud. If it is the latter, then the choice is clear.

gmatser1 · Answer

I agree. C does not make clear if it's dollar amount or total cases. Do we need this information to answer the question? I don't think so, because it's asking what information is needed.

zurich · Answer

I think I need it. If it is the total number of cases, we do not actually need that information in evaluating who may be responsible for the majority of the money loss every year. For instance, if self employed contribute to more than 50% of the cases, but the monetary value of these cases are small (less than 50% than that caused by the other group), then they are not the one responsible for the majority of money loss.

WillGetIt · Answer

Hello,

C is correct choice here. There are some flaws in analysis done by people about this choice.

Question Stem:

Which of the following would be most useful in assessing

whether tax fraud by self-employed individuals may be responsible

for

majority of the money that the IRS loses   every year?

Choice C mentions that "the average tax fraud " (ATF) committed by a self-employed individual versus a working professional

There could be following cases:

1.  ATF self-employed individual > ATF working professional

In this case self employed individuals would be responsible for loses to IRS.

See even though the number of self employed individuals are only 10% vis a vis working professional numbers (90%). A higher ATF clearly indicates that the total loses due to tax fraud are due to self employed individuals.

We are not at concerned with the exact number of defaulters in either self-employed or working professionals.

2.  ATF self-employed individual < ATF working professional

In this case self employed individuals would not be responsible for loses to IRS

Hope it helps!

rhine29388 · Answer

If we are able to determine difference between the average tax fraud committed by a self-employed individual versus a working professional we can easily resolve the issue whether tax fraud by self-employed individuals may be responsible for majority of the money that the IRS loses every year
correct answer - C

abrakadabra21 · Answer

To determine the extent of tax fraud, the Internal Revenue Service audited the current year tax returns of a random set of 1000 individuals. Even though only 10% of the individuals in the group were self-employed (other 90% were working professionals), they accounted for 50% of the fraudulent cases.

Pre-thinking

se = 100
Professional =900

assume that total fraudulent case = 100
then 50 fraudulent cases belong to s.e. & honest cases = 50

Now we can't draw ratio proposition of total money lost by IRS from no. of cases. lets say per s.e cases lost 100 rs. 
so 50*100 = 5000 and by professional fraudulent cases = 50*(>100) then majority of money lost is due to Professional fraudulent cases not because of S.E cases.  It depends upon the income of the particular group.

Also this is a very small sample.

For the group above, which of the following would be most useful in assessing whether tax fraud by self-employed individuals may be responsible for majority of the money that the IRS loses every year?

1. The trend of average income of self-employed individuals over the past few years compared to that of the rest of the group.

Past trend doesn't matter. If statement were : average income of self-employed individuals compared to that of the rest of the group in the current FY.

2. The difference between average annual taxes paid by  a self-employed individual  and  a working professional.

I don't understand which "self employed indidiual" and which " working individual" 
I guess, it would have made sense, if it is written as : The difference between average annual taxes paid by all self-employed individuals and all working professionals

3. The average tax fraud committed by a self-employed individual versus a working professional.
 average tax fraud will give you = 
Income*tax/total no. of cases that mean we can find out Income*tax or lost money through Fraudulent cases.

4. The diversity of demographics represented in the group versus that of the nation.

Demographics won't help. Although we will get characteristics of entire population vs sample we had taken.  
5. The number of women in the group who were working professionals versus self-employed.

The comparison is between profess. & self employed not between women prof. vs self employed.

KaranB1 · Answer

egmat

How do we know whether answer choice C is talking about average amount of money or average count /percentage of fraud?

To determine the extent of tax fraud, the Internal Revenue Service aud

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To determine the extent of tax fraud, the Internal Revenue Service aud

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