The Internal Revenue Service (IRS) has recently released reports that the estimated tax gap for 2001 is $345 billion. The tax gap is the difference between what is owed to the IRS and what is actually paid in taxes. So far the IRS has been able to claim about 16% of the missing taxes, but that still leaves around $290 billion left to be collected.
The IRS has conducted research to determine the tax gap of 2001 and its sources. The majority of the tax gap, $244 billion comes from individual income taxes. Most of it was the result of not recording the correct income. However, of this amount, $109 billion is the result of underreporting income by small businesses.
Many government entities have joined the IRS in order to not only help collect the outstanding amount, but to also discourage future misrepresentation of income. Some of the suggestions include:
Improving customer service – by using the internet and improving call centers, the IRS feels that there will be a reduction in the tax gap especially in the area of underpayments due to unintentional error. Increase Enforcement – In the past decade, high-income audits have dropped dramatically because of insufficient staff resources. Also, there has been quite an abuse of the Earned Income Tax Credit and a rise in fraud. By increasing penalties and pursuing those not in compliance, the IRS feels it will deter future intentional misrepresentation. Legislative Steps – There is a discussion that Congress could enact legislation to improve compliance and reduce tax avoidance opportunities, including regulating tax return preparers, increase reporting requirements, and broaden financial institution reporting requirements. Tax Simplification – One of the simplest ways to avoid miscalculations and confusion is to simplify the rules and definitions in the tax code. Making things clearer and more concise may actually raise tax revenues without having to raise taxes. One example is to offer a flat deduction rate for a home office instead of all the complicated equations.
There is no doubt that the IRS will be attempting to reclaim as much of the missing funds as possible and trying to avoid this discrepancy ever happening again.
Let your voice be heard! Contact your local and state representatives to voice your opinion on what the IRS should do to close the tax gap.
|
