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Random Tax Audits Show Massive “Tax Gap” of $345 Billion

Created: On October 30, 2007 @ 1:28 pm In

By Jim Perez,
DebtHelp, Inc. Staff Writer

If you’re one of the lucky individuals who got a note in October from your friends at the [1] IRS, don’t feel special, you’re not alone.

This October the Internal Revenue Service sent out about 13,000 random “Dear John Q. Taxpayer letters,” informing some taxpayers they’ve been selected for a special audit by the IRS.

The 13,000 random taxpayers chosen this year, with similar numbers to be picked in upcoming years, are part of the [2] IRS National Research Program.

The program is designed to give the IRS a better understanding of how accurately income and deductions are reported, and to reduce the “[3] tax gap.” The tax gap is the difference between what taxpayers should have paid and what they actually did pay.

The tax gap is a growing concern because it’s gotten so big.

In 2001, the IRS analyzed about 46,000 individual tax returns and found a [4] $345 billion shortfall in tax monies. After enforcement actions and late payments, that shortfall was cut to about $290 billion, still no laughing matter to the tax collection agency.

The IRS will use information gleaned from the special audits to help it update criteria for selecting tax returns for annual compliance audits. Last year, nearly 1.2 million taxpayers were audited, the IRS said. A smoother functioning audit system will help the agency work more efficiently and cut the odds of going after tax-abiding citizens.

Some of the noncompliance stems from taxpayers not paying what they calculated they owe in taxes. Or not filing at all.

But the biggest problem, about 80 percent of the tax gap, comes from underreporting, the IRS says. This includes people working in restaurants who might underreport tip income, or sole proprietors who take [5] business deductions for personal expenses.

The IRS concedes some mistakes are accidental, but notes that it has to watch out for intentional underreporting or even criminal activity.
Waterboarding is NOT one of the remedies being considered in upcoming years to [6] improve voluntary tax compliance rates.

Article printed from DebtHelp.com Blog: http://www.debthelp.com/blog

URL to article: http://www.debthelp.com/blog/2007/10/30/random-tax-audits-show-massive-tax-gap-of-345-billion/

URLs in this post:
[1] IRS: http://www.irs.gov/
[2] IRS National Research Program: http://www.irs.gov/newsroom/article/0,,id=171023,00.html
[3] tax gap: http://www.ustreas.gov/press/releases/reports/otptaxgapstrategy%20final.pdf
[4] $345 billion shortfall: http://www.irs.gov/pub/irs-utl/taxgap021406.pdf
[5] business deductions for personal expenses: http://www.irs.gov/newsroom/article/0,,id=169072,00.html
[6] improve voluntary tax compliance rates: http://www.irs.gov/pub/irs-news/tax_gap_report_final_080207_linked.pdf