by Brian Mahany
America’s tax gap – the difference between what the IRS collects and what it should collect. Estimates differ widely but everyone agrees that it is measured in the hundreds of billions of dollars annually. In the last comprehensive study, the IRS estimated it collects 84% of what is due each year.
President Obama proposed adding 5500 IRS agents in this year’s budget and increasing the IRS budget by $1.2 billion. The Republicans want to cut the agency’s budget by $600 million.
Hiring more agents will certainly increase collections. The political will to audit every American simply isn’t there, however. What is the right balance is the subject of a hot political debate. Some say the way to increase collections and lower the tax gap is to simplify the tax code. Others say it is to hire more agents.
Wage earners typically file and pay accurately. It’s hard to cheat when everything you make is subject to a W-2 and 1099. But the compliance rate among those in cash businesses (commercial fishermen for example) and the self employed is much lower. Experts say the compliance rate for those folks is somewhere between 50 and 66%.
Another group with low compliance is those Americans with undisclosed foreign offshore accounts. Some foreign accounts move their money overseas deliberately to avoid taxes. Others, primarily dual nationals and foreign born Americans, simply do not understand the foreign reporting requirements and think they are simply sending money “home.”
The debate is not going to end soon. While no one knows if the IRS will get additional agents next year, the agency has added thousands in recent years with many of those now tasked to examine wealthy taxpayers. The IRS continues to add more sophisticated tools and relies heavily on information sharing and targeted criminal prosecutions of foreign bankers believed to have helped Americans hide their money.
If you have tax compliance problems, contact us. Our tax lawyers have helped people and small businesses from Maine to Hawaii and most places in between. All consultations are completely confidential. For more information, contact attorney Brian Mahany directly at (direct) or by email at
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