The Tax Gap
I have been at a continuing education event today. One of the key speakers was an IRS agent representing our district. His main topic was, The Tax Gap.
The IRS believes that the tax gap is growing. In 2001, the last time they tested, they believed the gap was around $350 billion dollars. Now, based upon the most recent testing, the Internal Revenue Service believes the tax gap is $450 billion dollars, a nearly 30% increase in just 5 years.
What is the tax gap? It is the difference between what revenue was expected to be collected by our chief collection agency and what actually was collected.
In fiscal year 2012 our federal government collected $2.5 trillion dollars. But, that was nowhere near enough. We still incurred federal deficits over $1 trillion dollars.
Our federal government believes that, in part, that deficit can be covered by closing the tax gap.
The main portion of our speaker’s presentation was on how they will try to close the tax gap? Here are the seven ways he believes the IRS will close the tax gap. Following each suggestion, my comments are in italics.
1. Reduce opportunities for evasion. This means that the IRS will be insisting on even more reporting standards. The form 1099 now has as many versions as the alphabet. The IRS is setting up a reporting regimen that will allow them to know where every dollar you collect is coming from and where every dollar you spend is going.
2. Make a commitment to research the tax gap. This means that instead of every 5 years, they believe this issue must be studied every year. This means that more attention will be drawn to this subject and more power to correct the “problem” will be demanded by this agency.
3. Continue improvements in information technology. The IRS has made large investments in their network technology. This is allowing them to gain access and store vast amounts of financial information.
4. Improve compliance activities. Very simply…there will be many, many more audits of ALL taxpayers (both rich and poor), than there ever has been before.
5. Enhance taxpayer service. This means more agents “serving” the public. In fact, the Taxpayer Advocate’s Office, in last year’s annual report, said that the number 1 problem facing taxpayers is….too few IRS employees!!! Now, they did not say it that way. What they said was that the IRS does not have enough workers to accomplish all the missions given to it by the Congress.
6. Reform and simplify the tax law. Those are lofty goals, and will NEVER happen. Why? Because politicians want to meddle in your life! They want to tell you what to do. As long as there is an income tax, it WILL be complicated.
7. Coordinate with partners and stakeholders. Just to clarify, partners are CPA’s, EA’s and other tax professionals. The IRS is on a major effort to enlist the “help” of tax professionals to increase compliance levels. By compliance, they DON’T mean filing your returns on time. That rate is already 86%! They mean filing the return the way they want you to file it.
Well, I can tell you that incredible challenges lie ahead in the next few years. The IRS has tremendous power. It will be given MORE power.
You need to get prepared. You need to do things right.