Posted on: Wednesday, March 30, 2005
IRS says $300B in taxes unpaid, thanks to confusing laws
By Mary Dalrymple
Associated Press
WASHINGTON — The government is missing out on more than $300 billion in unpaid taxes every year, and part of the problem appears to be that the tax laws are so confusing.
Balce Ceneta • Associated Press Individuals who report less income than they earn, either intentionally or not, contribute most to the tax gap, the Internal Revenue Service said in a report yesterday. The president has appointed a panel to recommend ways that taxes can be made simpler and fairer.
The government also is losing hundreds of millions of dollars each year because IRS computers don't record interest due on penalties for those unpaid taxes.
The IRS estimated the tax gap, the difference between taxes owed and taxes due, after auditing 46,000 people and combining those findings with older estimates of unpaid corporate, payroll and unemployment taxes.
The report estimated the gap at $312 billion to $353 billion for 2001, about 15 percent of the total taxes owed. Taxpayers were slightly less likely to comply with tax laws than they had been at the time of the latest previous study in 1988.
"This research confirms that the vast majority of Americans pay their taxes honestly and accurately," said Everson.
The IRS recovered $55 billion of the unpaid taxes through audits and late payments, leaving a net gap between $257 billion and $298 billion.
The majority of unpaid-tax cases involved individuals, not businesses. Among the people who contributed to the tax gap, most understated their income, especially business income.
Excessive deductions, exemptions, credits and other adjustments accounted for $25 billion to $30 billion of the tax gap.
The audits found frequent mistakes reporting alimony income, unemployment compensation and state income tax refunds.
Everson said the tax agency probably will never collect every dollar owed.
"Complexity obscures understanding," said IRS Commissioner Mark Everson said. "Those who try to follow the law but cannot understand their tax obligations may make inadvertent errors or ultimately throw up their hands and say, 'Why bother?' "
Internal Revenue Service Commissioner Mark W. Everson, at a news conference in Washington, says overhauling the tax code to eliminate complexity will help narrow the tax gap.
