ASSOCIATED PRESS
The tax gap, the estimated $290 billion difference between what taxpayers owe every year and what they pay, is the most pressing problem facing the Internal Revenue Service, an independent board said yesterday.
“The tax gap is an injustice to honest taxpayers who ultimately bear the burden of tax cheating,” said Paul Jones, chairman of the IRS Oversight Board, a panel of private-sector advisers. He said it undermines confidence in the fairness of the tax system and contributes to noncompliance.
The IRS has estimated the annual tax gap at $345 billion, corresponding to a noncompliance rate of 16.3 percent. The net tax gap, after enforcement and other late payments, is an estimated $290 billion, the board said.
Democrats, now in control in Congress, have stressed that closing this gap is central to their goals of increasing funding for their priorities while reducing the federal deficit. But the board said there was no magic formula to solve the problem.
It praised the IRS for stepped-up enforcement activities, saying enforcement revenue rose 3 percent in the 2006 budget year to $48.7 billion. The board noted that IRS audits of high-income individuals rose from 100,000 in 2000 to almost 220,000 in 2005.
IRS Commissioner Mark Everson has said small businesses, which tend to cut corners on their taxes, and millionaires are getting increased attention from auditors.
“We have restored the credibility of our enforcement programs which were badly diminished and to some degree gutted” in the 1990s, he said in November when he announced enforcement figures.
The board said simplifying tax laws and improving information gathering could help narrow the gap. The board noted that people who have their income reported to the IRS are much more compliant about filing.
While giving high marks to the IRS for improving customer service, the board said the agency should do more to make taxpayers aware of their legal obligations and ease their burden through modernization.
The board recommended more cooperation between the tax agency and tax practitioners and more emphasis on personal integrity in making tax decisions.
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