Americans Cheat on Taxes At a Cost of $345 Billion a Year
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Americans cheat on their taxes to the tune of about $345 billion a year and $290 billion of that goes uncollected by the government, the U.S. Internal Revenue Service said.
The IRS released new data yesterday based on its random audits of 46,000 tax returns for 2001 that pinpoint its estimate of the so-called “tax gap.” The agency previously had described the gap as a range between $312 billion to $353 billion.
The $345 billion gross tax gap is nearly equal to Bush administration projections for the budget deficit, which the Office of Management and Budget estimates will reach $354 billion in the fiscal year that begins October 1.
“The magnitude of the tax gap highlights the critical role of enforcement in keeping our system of tax administration healthy,” IRS Commissioner Mark Everson said in a statement.
Mr. Everson is scheduled to testify before the Senate Budget Committee on the uncollected revenue today.
The IRS collected $2 trillion in revenue in fiscal year 2004, including $717 billion in payroll taxes used to fund the Social Security and Medicare retirement programs. That means the uncollected revenue represents a noncompliance rate of 16.3%.
Mr. Everson said most of the noncompliance occurs in business sectors where there isn’t automatic reporting of transactional information to the IRS, such as sole proprietors. The IRS is unable to determine what percent of the underpayments are due to willful noncompliance with the tax laws and how much is attributable to confusion created by the complicated tax system, Mr. Everson said. The IRS’s estimate also incorporates outdated projections of underpayments by corporations, so the actual tax gap is likely higher than $345 billion, he said.
The Bush administration has requested $89 million in new funding to improve enforcement efforts at the IRS in the coming fiscal year.
Mr. Everson said that wouldn’t allow the IRS to conduct more audits. Instead, he said, the IRS will use the results of the study to better focus its efforts and better “target” areas of noncompliance with the law when conducting audits.
