Washington - The first study of taxpayer compliance since 1988 shows that the vast majority of Americans pay their taxes on time and accurately, but that the nation still has a significant tax gap, according to the Internal Revenue Service.
The National Research Program, launched in 2001, randomly selected about 46,000 returns for review and examination from 2001 to 2004. The return selection process included an oversampling of high-income returns to enable IRS researchers to draw valid conclusions about important sub-categories of taxpayers.
The preliminary findings show that the gross tax gap - the difference between what taxpayers should pay and what they actually pay on a timely basis - exceeds $300 billion a year. Enforcement activities, coupled with late payments, recover about $55 billion, leaving a net gap of between $257 billion and $298 billion.
The study found that underreporting of income is the largest part of the gap, accounting for more than 80 percent of the total, with non-filing and underpayment at about 10 percent each. Individual income tax is the largest source of the annual gap, accounting for about two-thirds of the total.
For the individual underreporting, more than 80 percent comes from understated income, not overstated deductions, and most of the understated income comes from business activities, not wages or investment income.
IRS Commissioner Mark W. Everson said, "The IRS needs to enforce the law so that when Americans pay their taxes, they are confident that neighbors and business competitors are doing the same. ... Those who try to follow the law but cannot understand their tax obligations may make inadvertent errors or ultimately throw up their hands and say, 'Why bother?'"
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