The IRS defines “Tax Gap” as,
[T]he difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time. The tax gap can also be thought of as the sum of non-compliance with the tax law.
There are 3 components of the Tax Gap:
- Nonfiling;
- Underreporting; and
- Underpayment.
The IRS says that,
[U]nderreporting of income tax, employment taxes and other taxes represents about 80 percent of the tax gap.
The single largest sub-component of underreporting involves individuals understating their incomes, taking improper deductions, overstating business expenses and erroneously claiming credits.
Individual underreporting represents about half of the total tax gap. Individual income tax also accounts for about half of all tax liabilities.
Authors Prediction: Even before our mild recession became a full-blown one, Obama had vowed that one of his priorities would be to close the Tax Gap. Now, with the federal government hemorrhaging money like Bonfire of the Vanities’, Sherman McCoy, you can expect the IRS to redouble its efforts to enforce compliance and collect back taxes in 2009 and beyond.
For more information on the Tax Gap and the IRS’s plans for closing it, go to FS-2005-14, March 2005.
Other Posts on the Tax Gap:
Rifkin: An Overview of the “Tax Gap” - Paul L. Caron, TaxProf Blog
Tax Gap Flap – Brian Phillips, Tax Policy Blog
Closing the Tax Gap Means “Taxpayers Beware” – Alison Acosta Fraser and William Packer, Heritage Foundation
9 responses so far ↓
1 IRS Continues to Step-Up Enforcement Efforts, 2007 Statistics Reveal // Dec 18, 2008 at 10:47 pm
[...] a recent post titled As Tax Gap Widens Expect IRS to Get Tougher on Non-Compliers we predicted that the IRS will in the next few years greatly accelerate it’s enforcement [...]
2 Tax Preparers Beware: Federal Regulation May Be on the Way // Jan 3, 2009 at 12:14 pm
[...] of assessment and collection of those revenues. President-Elect Obama has pledged
3 Tax Vox Proposal: Hire More IRS Agents to Close Tax Gap // Jan 8, 2009 at 12:02 am
[...] of additional revenue. Fortifying enforcement would seem to be a “no-brainer” when we have a tax gap of at least $400 [...]
4 Heading to Tax Court? Here’s How to Win // Feb 6, 2009 at 10:30 am
[...] the IRS more aggressively pursuing delinquent taxpayers in an effort to close the Tax Gap, we expect to see more cases tried in Tax [...]
5 Brace Yourselves Non-Filers and Delinquent Taxpayers - IRS to Increase Enforcement // Mar 1, 2009 at 12:48 pm
[...] previous blog posts titled
6 Wall Street Journal: “Don’t be an Ostrich, Do Something About Your Tax Problem Now.” // Mar 2, 2009 at 9:36 am
[...] As Tax Gap Widens Expect IRS to Get Tougher on Non-Compliers [...]
7 IRS Closes Private Collection Program, Will Increase Government Enforcement // Mar 10, 2009 at 3:01 am
[...] As Tax Gap Widens Expect IRS to Get Tougher on Non-Compliers Bookmark & Share: [...]
8 Orlando IRS Office to Hire 10 New Collection Agents // Mar 27, 2009 at 9:18 am
[...] As Tax Gap Widens Expect IRS to Get Tougher on Non-Compliers Bookmark & Share: [...]
9 White House Vows to Intensify IRS Collection Aggressiveness to Close $300 Billion Tax Gap // Mar 28, 2009 at 12:03 am
[...] hate to say “I told you so”, but I told you so. Bookmark & [...]
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