Fixing the tax gap as part of tax reform

Source: IRS Tax Gap - http://www.irs.gov/uac/The-Tax-Gap

How does the net annual tax gap of $382 billion fit into tax reform?  This is a lot of money that is not collected due to both intentional and unintentional errors. For perspectives on understanding the significance of this amount, consider the following:

• Per OMB, the deficit for fiscal year 2011 was $1.3 trillion. The net tax gap represented about one-third of that amount (OMB, Table 1.1).
• Per IRS data, for FY 2011, the net tax gap exceeded net tax collections for the corporate income tax and tax-exempt unrelated business income tax ($175 billion), excise taxes ($47 billion), and estate and gift taxes ($7.3 billion) combined (IRS, Data Book, Table 1).

But, how can this gap be reduced? Much of it is from some businesses not reporting cash revenues. Some suggestions from GAO in a 2007 report include:

• Have the IRS provide assistance to first time Schedule C filers.
• Require Schedule C filers to have a separate bank account for business activity versus personal activity.
• Require consumers to issue 1099s to service providers if they provide a service that will increase the basis of the consumer's property (such as a new roof on your home).
• Require 1099s for payments under $600.

What about having businesses withhold on payments made to non-corporate businesses?  What about more audits of cash businesses?

For more on the tax gap and tax reform, please see my article - Narrowing the tax gap for tax reform, AICPA Tax Insider, 3/14/13.

What do you think? Will Congress consider tax gap measures as part of tax reform work? What do you think will help reduce the tax gap?

Fixing the tax gap as part of tax reform 2013-03-17T20:54:00-07:00 Rating: 4.5 Diposkan Oleh: Unknown