Closing the tax gap has been gaining momentum on Capitol Hill for many years. Currently, the IRS projects that there is $290 billion in unpaid taxes. Recently, the Treasury and the IRS officials released a tax compliance strategy that focuses on increasing tax penalties for faulty returns and requiring more information reporting of all transactions. Most of these proposals however, are causing alarm for many small-businesses.
Many small-business owners argue that they are already overwhelmed by over complicated tax forms and codes and the new proposals will only add to more undue burden.
The new proposals would:
Require the collection and confirmation of anyone’s taxpayer identification number they hire for more than $600 in a given year. Require the owners to withhold payroll taxes on independent contractors who cannot provide TINs or whose TINs cannot be confirmed. Require owners to report payments of $600 or more to corporations regardless of size. Require all transactions be reported by banks that handle credit card processing.
The credit card reporting proposal is particularly concerning for small-businesses. Many feel that the reporting of these records is an invasion of privacy.
Some believe that the main cause for improper filing is due to the complexity of the tax codes that are already in place. With this in mind, several alternatives to the proposals have been suggested that emphasized the need for outreach programs designed to increase education for proper filing resulting in improved tax compliance.
The Treasury and the IRS are trying to assure that the intentions of these proposals are to protect those that follow the system and to punish those who try to beat the system. However, many feel that adding more regulations to an already complicated system may just cause a greater amount of unintentional non-compliance to tax codes, causing a furthering of the tax gap.
Every tax payer should be concerned about the tax gap. Each year millions of compliant tax payers pay more to subsidize those non-compliant tax payers. It is estimated that if every tax payer pays their fair share, taxpayers could pay up to 30 percent less in taxes. Voice your opinion on this crisis by contacting your local state representative.
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