IRS Releases Tax Gap Report

By Alistair M. Nevius, J.D.

The Service has released a report addressing the tax gap. The tax gap is the shortfall between taxes collected and the actual amount owed, which results from nonfiling, underreporting, and underpayment. For 2001, the IRS estimates that only 86% of taxes owed were collected, resulting in a tax gap of approximately $290 billion.

In September 2006, Treasury released a strategy for reducing the tax gap, consisting of seven components:

  • Reducing opportunities for evasion;
  • Making a multiyear commitment to research;
  • Continuing improvements in information technology;
  • Improving compliance activities;
  • Enhancing taxpayer service;
  • Reforming and simplifying the tax law; and
  • Coordinating with partners and stakeholders.

The IRS report details compliance objectives and initiatives for achieving the components of the strategic plan, along with targeted completion dates. The Service believes that these initiatives will increase the rate of taxpayers’ voluntary compliance with their tax obligations.

The report gives detailed information for each step the IRS is currently taking to reduce opportunities for tax evasion, to more effectively use technology, and to support legislative proposals to improve compliance. The full report is available at www.irs.gov/pub/irsnews/tax_gap_report.pdf.

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