US makes dent in the tax gap

US makes dent in the tax gap International Tax Review The US Treasury has told the Senate Finance Committee that the federal tax gap has fallen from about $345 billion in 2005 to about $290 billion now. The reduction has come mainly from enforcement actions and other late payments, officials said. Senator Max Baucus, the chairman of the committee, asked the Treasury in May for an update to its September 2006 and August 2007 reports on the tax gap. The update covers how to reduce the federal tax gap and improve voluntary compliance. The Treasury said it would be able to review the issue, which describes the difference between the amount of taxes owed and collected, more frequently because of an increase in funding included in the Internal Revenue Service's 2009 budget. The report gives a comprehensive overview of efforts to close the tax gap, discussing many proposals outlined in the recent budget.
US makes dent in the tax gap
International Tax Review

The US Treasury has told the Senate Finance Committee that the federal tax gap has fallen from about $345 billion in 2005 to about $290 billion now. The reduction has come mainly from enforcement actions and other late payments, officials said.

Senator Max Baucus, the chairman of the committee, asked the Treasury in May for an update to its September 2006 and August 2007 reports on the tax gap.

The update covers how to reduce the federal tax gap and improve voluntary compliance. The Treasury said it would be able to review the issue, which describes the difference between the amount of taxes owed and collected, more frequently because of an increase in funding included in the Internal Revenue Service's 2009 budget.

The report gives a comprehensive overview of efforts to close the tax gap, discussing many proposals outlined in the recent budget.

The report repeated the seven components to the Treasury's strategy for minimising non-payment of taxes: reduce opportunities for evasion; make a multi-year commitment to research; continue improvements in information technology; improve compliance activities; enhance taxpayer service; reform and simplify the tax law and coordinate with partners and stakeholders.

Baucus said the report showed the IRS was working to identify problems, improve tax adminstration and set short-term compliance goals. "However, more specific long-term goals, measures and timelines for an improved rate of tax compliance and a reduction in the amount of lost tax revenues are necessary for the IRS to effectively focus its resources and evaluate its progress on an ongoing basis," he said.

President Obama has made addressing under-reporting of income earned or held through offshore accounts or entities a priority for his administration, developing an extensive plan to combat offshore tax evasion by US taxpayers that includes legislative proposals, efforts to increase exchange of tax information with other countries and increased enforcement.

The report said access to information from other countries is critically important to combating offshore tax evasion. And the authors of the report on to brag that the US has been a leader in increasing information exchange in tax matters, working through the OECD to establish standards on transparency and exchange of information for tax purposes, and strongly encouraging countries to adopt these standards.

Among the groups the report lists as important to establish good communication and information sharing links with are the Joint International Tax Shelter Information Centre (Jitsic) and the Leeds Castle Group, a larger body of tax administrations, which it said boasts many Asian members, who do not always join such discussion groups.

The update notes that the IRS and Treasury, working with Congress, are also pursuing a wide range of initiatives aimed at better voluntary compliance to help close the tax gap. Making the tax filing process easier and more taxpayer-friendly is high on the list. Aggressive enforcement activity is also seen as important, but the publication does note that "increased enforcement efforts require certain trade-offs." Acknowledging that any changes must be made sensitive to the demands placed on all taxpayers, not only those dodging the system.

"The Administration is committed to working closely with Congress to strike an appropriate balance to maximize revenue collection without imposing unreasonable compliance and enforcement burdens on the vast majority of individuals and businesses that fully and willingly pay what they owe," the report concludes.