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Have you heard about the tax gap?

Are you interested in what this is?

It just may be an eye opener for you. The tax gap is what the IRS considers the difference between what taxpayers should have paid and what they did pay on time.

For 2001 the estimation is $345 billion. Since tax year 2001, with enforcement efforts the IRS has managed to recover $55 billion of that amount, bringing the net tax gap to $290 billion.

The IRS estimated that by March 2006 the tax gap would fall within a range of $312 billion to $353 billion.

The majority of the gap is due to the under-reporting of income. Perhaps you thought it was people not filing, and yes that does contribute to the gap, but to a much lesser degree. Another contributing factor is underpayment.

Some further data about the gap is that it didn’t result just from citizens who chose not to report some of their income. The IRS also noted the complexity of the tax law plays a significant role in creating the tax gap. Even they can see the laws can confuse the average citizen.

Here is what IRS Commissioner Mark W. Everson had to say about that, “Helping taxpayers better understand their obligations under the current tax law will facilitate compliance, but simplifying the tax code would have a big impact on reducing the tax gap,”. This sounds like he is aware of what the normal tax payer deals with.

What about businesses? Under-reported business income accounted for $109 billion of the total $197 billion in under-reported individual income tax, the majority of it coming from non-farm sole proprietors of small businesses. They file income on Schedule C, where there is little or no third-party reporting or withholding.

The tax agency found that where there was third-party reporting compliance was highest.

By now you may be wondering what is being done to lessen this gap? Actions have included an increase in audits. Last year, there were more than 1.2 million, up 20 percent from the previous year. The good news is, the audits of taxpayers earning more than $100,000 rose to 221,000, the highest number in 10 years. So the little guy wasn’t the only target.

On the other side of things, did you not receive your tax return from a past year? If you are due money, do an internet search for your unclaimed money.

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