To divine the true meaning of a gap, I usually need to go beyond calculating the difference between my gross pay and net pay on the 15th and 30th of each month.That my friends, is Webster’s unabridged definition of a gap.
But on a far larger scale, most of you have seen a flurry of editorial content -- some of it on this site as well as in our print publications -- about the current impetus to reduce the widening crater known simply as the “tax gap” -- the amount between taxes legally owed and what’s actually collected. At last report that figure was hovering at about the $300 billion mark. To put that number in perspective, that’s roughly $1,000 for every (ahem, legal) resident of the U.S.
The Internal Revenue Service partitions the tax gap into three components: non-filing, underreporting and underpayment. Statistics from the Service’s National Research Program identified areas that have widened that gap over recent years including: reporting of net income from flow-through entities, such as partnerships and S corporations; reporting of proprietor income and expenses, such as gross receipts, bad debts and vehicle expenses; and reporting of various types of deductions.
The tax gap situation had festered to the point where Sen. Max Baucus, D-Mont., the ranking minority member of the Senate Finance Committee, threatened to hold up the confirmation hearing for Eric Solomon to be the assistant secretary of the Treasury for tax policy -- a job, incidentally, that’s been vacant for more than two years -- until the Treasury put a plan to address the tax gap in writing.
Apparently finding itself in an unfamiliar position and having little or no experience in mediating a minor hostage negotiation crisis, the Treasury just issued, “A Comprehensive Strategy for Reducing the Tax Gap.”
The report states that the details of the tax gap strategy are, well, contingent upon the budgeting process, but promised that both the Treasury, and the IRS would provide a more detailed outline of exactly how to reduce the gap immediately following the release of the 2008 fiscal budget. It did however outline some battle strategies such as addressing unintentional taxpayer errors and intentional taxpayer evasion; targeting sources of noncompliance; and attempting to combine its enforcement activities with a commitment to taxpayer service.
Boilerplate to be sure, but a step in the right direction, albeit a vague one. But consider the benefit if it succeeds in even a recovery of several billion.
And if it’s any consolation, judging from my pay stubs, they can safely rule me out as one of the violators.
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