Tax Administration:

Estimates of the Tax Gap for Service Providers

GGD-95-59: Published: Dec 28, 1994. Publicly Released: Dec 28, 1994.

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Pursuant to a congressional request, GAO provided information about the income tax gap for self-employed individuals for tax year 1992, focusing on: (1) nonfarm sole proprietors who provided services; and (2) service providers who may have been misclassified as self-employed.

GAO found that: (1) the Internal Revenue Service (IRS) considered about 9.2 million to 11.5 million nonfarm sole proprietors as potential service providers for tax year 1988; (2) IRS estimated that the income tax gap for nonfarm service providers ranged from $21 billion and $30.3 billion for 1992, which was 56 to 81 percent of the total tax gap for all nonfarm sole proprietors who filed a return; (3) informal suppliers accounted for the largest single portion of the income tax gap for sole proprietors; (4) between 0.2 million and 1.6 million of the 11.5 million service providers may have been misclassified employees; and (5) between $2 billion and $3.5 billion was associated with potentially misclassified workers.

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