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Homework answers / question archive / 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
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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