Everyone in Washington seems to be in agreement that there needs to be a better way of closing the tax gap, but like the other problems facing the Internal Revenue Service, there’s seems to be little Beltway consensus over how to meaningfully tackle the problem.It wasn’t lost on me that the same week that the IRS released its 2008 budget proposal --complete with a number of legislative proposals, a Congressman and the National Taxpayer Advocate continued to spar over the future of one of the agency’s newer attempts to combat the tax gap -- the outsourcing of simple collection cases to private companies as part of a pilot program.
Barely five months old, the pilot has come under heavy attack, without any cases of abuse making their way to the public. Washington’s inability to solve the nation’s other tax conundrums, including the fate of the alternative minimum tax, the future of President Bush’s first-term tax cuts, or even the inexpedient passage of the infamous extender breaks that have cause paperwork nightmares for the IRS should all serve to underscore just how tought the feasibility of eliminating something as amorphous at the tax gap really is.
Among the items on the IRS’s legislative laundry list are proposals to expand information reporting, improve compliance by businesses, strengthen tax administration and
expand penalties. More specifically, the agency wants the authority to:
- Require information reporting on payments to corporations;
- Require basis reporting on security sales;
- Expand broker information reporting;
- Require information reporting on merchant payment card reimbursements;
- Rquire a certified taxpayer identification number from non-employee service providers;
- Require increased information reporting for certain government payments for property and services;
- Increase information return penalties;
- Improve compliance by businesses;
- Require electronic filing by certain large businesses;
- Implement standards clarifying when employee leasing companies can be held liable for their clients’ federal employment taxes;
- Amend collection due process procedures applicable to employment tax liabilities;
- Strengthen tax administration;
- Epand IRS access to information in the National Directory of New Hires database;
Permit the IRS to disclose to prison officials return information about tax violations;
Make repeated failure to file a tax return a felony;
Expand penalties for preparers;
Impose a penalty on failure to comply with electronic filing requirements; and,
Create an erroneous refund claim penalty.
The proposed legislation seems to be the addition of more red tape to a tax system that most experts say is already too unwieldy for effective and efficient enforcement. As the budget itself notes, “The complexity of the national’s current tax system is a significant reason for the tax gap, and even sophisticated taxpayers make honest mistakes on their tax returns.” Enforcement changes are surely a piece of the puzzle, but they do nothing to solve the root cause of the problem.
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