More Aggressive IRS Fights the Shrinking Tax Gap

The tax-relief industry loves to make IRS problems sound impossible without them. They're not. I'm Darrin Mish. I've been representing taxpayers before the IRS for 32 years. Let me explain how this actually works.

$300 billion.

According to a study released in March, that’s what the tax gap was in 2001. The tax gap is the total amount of money paid to the IRS compared to the estimate of what should be paid. That means, in 2001, there were $300 billion in taxes due that were never paid.

That’s one heck of a balance due.

“People who aren’t paying their taxes shift the burden to the rest of us,”IRS Commission Mark W. Everson said in a statement regarding the study.

But what’s newsworthy about this study is not the staggering $300 billion figure. It’s the incorrect picture that the study paints.

With that large of a tax gap, most taxpayers would rightfully assume that the IRS is a lax agency and that they could likely get away with cheating on their taxes or underreporting their income.

Wrong!

Since 2001, the year that the study examined, the IRS has dramatically stepped up its efforts to reduce and prosecute tax cheats.

Among the steps the agency has taken :

The IRS has increased its enforcement revenues by nearly 28 percent, from $33.8 billion in 2001 to $43.1 billion in 2004. Audits of high-income taxpayers — those earning $100,000 or more — topped 195,000 in fiscal year 2004, which is more than double those conducted in 2001. Total audits of all taxpayers topped 1 million last year — a 37 percent jump from 2001. The IRS has worked with credit card companies to identify taxpayers who are using offshore bank accounts to hide income. Those using frivolous tax-avoidance arguments in court are facing up to $15,000 in fines. With the help of the Justice Department, the IRS has issued more than 100 injunctions against tax-scheme promoters.

Taxpayers should consider these facts when they begin to hear, as they will, the promoters of tax-avoidance schemes trumpet the $300 billion tax gap. The truth is, while there will always be a tax gap, the IRS is an incredibly aggressive tax-collecting agency.