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Tax Compliance: Opportunities Exist to Reduce the Tax Gap Using a Variety of Approaches

GAO-06-1000T Published: Jul 26, 2006. Publicly Released: Jul 26, 2006.
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Highlights

The tax gap--the difference between the tax amounts taxpayers pay voluntarily and on time and what they should pay under the law--has been a long-standing problem in spite of many efforts to reduce it. Most recently, the Internal Revenue Service (IRS) estimated a gross tax gap for tax year 2001 of $345 billion and estimated it would recover $55 billion of this gap, resulting in a net tax gap of $290 billion. When some taxpayers fail to comply, the burden of funding the nation's commitments falls more heavily on compliant taxpayers. Reducing the tax gap would help improve the nation's fiscal stability. For example, each 1 percent reduction in the net tax gap would likely yield $3 billion annually. GAO was asked to discuss the tax gap and various approaches to reduce it. This testimony discusses to what extent the tax gap could be reduced through three approaches--simplifying or reforming the tax system, providing IRS with additional enforcement tools, and devoting additional resources to enforcement--as well as various factors that could guide decision-making when devising a strategy to reduce the tax gap. This statement is based on prior GAO work.

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Delinquent taxesFinancial analysisFiscal policiesFuture budget projectionsIncome taxesNoncompliancePolicy evaluationStrategic planningTax administrationTax nonpaymentTax returnsTax violationsTaxpayersUnderpaymentsTax gap