In response to requests from Congress, the Government Accountability Office has released a new report outlining a trio of approaches that would reduce the tax gap - while at the same time laying out the significant obstacles that any approach would face.The GAO said that simplifying the Tax Code, or passing fundamental tax reform, could potentially reduce the tax gap by billions. For the 2001 year, the Internal Revenue Service has estimated that errors in claiming tax credits and deductions contributed $32 billion to the tax gap alone. However, the report notes, "these provisions serve purposes Congress has judged to be important, and eliminating or consolidating them could be complicated."
The report also suggested upping the current withholding and reporting requirements, but also said that many types of income are already subject to reporting, underreporting exists in many forms, and withholding and reporting requirements impose costs on third parties.
Finally, the report said that increasing enforcement efforts could have a major effect, but that determining the appropriate level of enforcement resources requires taking into account factors such as how well the IRS uses its resources, the proper balance between taxpayer service and enforcement activities, and competing federal funding priorities.
Most recently, the IRS estimated a gross tax gap for the 2001 tax year of $345 billion, estimating that it would eventually recover $55 billion of that gap.
The report is available online at www.gao.gov.
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