IRS Draws Plans to Address the 'Tax Gap'

The Internal Revenue Service (IRS) reports that they are furiously working to address an annual situation that effectively penalizes taxpayers who voluntarily pay on time, the "tax gap."

According to the IRS, 86 percent of all federal income tax due is paid voluntarily and on time by taxpayers every year. The other 14 percent is not collected on time and requires some enforcement action by the IRS. This creates the "tax gap," a monetary shortfall that is the difference between the amount of money owed to the government in taxes and the amount actually taken in on time. During the tax gap, that monetary shortfall has to be made up by -- you guessed it -- all the taxpayers who paid voluntarily and on time.

The key to reducing the tax gap is increasing the numbers of taxpayers who pay on time. Towards that goal, the IRS has devised what it considers a Comprehensive Strategy for Addressing the Tax Gap (.pdf), based on four key elements:

• "First, unintentional taxpayer errors and intentional taxpayer evasion should both be addressed."

• "Second, sources of noncompliance should be targeted with specificity."

• "Third, enforcement activities should be combined with a commitment to taxpayer service."

• "Fourth, policy positions and compliance proposals should be sensitive to taxpayer rights and maintain an appropriate balance between enforcement activity and imposition of taxpayer burden."

During fiscal year 2005, more than 95 percent of the over $2.2 trillion taken in by the federal government were collected by the IRS through income, transfer and excise taxes.

Also See: What is the Tax Gap and Why Does it Cost You Money?