New IRS Tax Gap Report: Cheating Still Rampant

In 2006, Americans underpaid their taxes by $450 billion that was a lot of money; equal to a 17% noncompliance rate. Also it means that wage earners who are paying their fair share are paiying up more to compensate for the tax cheats out there. The IRS put out information on enforcement efforts to close the tax gap that are just getting underway. Americans underpaid their taxes by $450 billion in 2006. A crackdown on unscrupulous tax return preparers; this is part of a multi-year strategy to register all paid return preparers. But the major push is for more third-party information reporting. Compliance is the highest where there is third party reporting. As a result, a net of only 1 percent of wage and salary income was misreported. Stock brokers and mutual fund companies will be required to report costs basis information on stocks and mutual funds to investors and the IRS (no fudging your capital gains taxes). Similarly, new merchant card reporting requirements established this year should make it easier for the IRS to spot businesses that are either under-reporting receipts or not reporting at all. And new reporting requirements for a U.S. individual with financial accounts oversees will help the IRS keep an eye out for offshore tax avoidance. Despite all the complaints from the business community about information reporting, it’s a friendlier way to combat the tax gap than through increased enforcement efforts