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Tax Gap: Complexity and Taxpayer Compliance

GAO-11-747T Published: Jun 28, 2011. Publicly Released: Jun 28, 2011.
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Taxes are necessary because they fund the services provided by government. Several years ago, the Internal Revenue Service (IRS) estimated that the gross tax gap--the difference between taxes owed and taxes paid on time--was $345 billion for 2001. In the face of large and growing deficits, it is important to seek out potential causes and solutions to the tax gap. Achieving high levels of voluntary compliance is made more challenging as the tax code expands. Tax expenditures--preferential provisions in the code such as exemptions, exclusions, deductions, credits, and deferral of tax liability--have expanded the tax code, more than doubling in number since 1974. GAO's statement focuses on four key areas: (1) how complexity adds to taxpayer burden and economic efficiency costs; (2) how complexities in reporting income contribute to the tax gap; (3) how tax expenditures add complexity and contribute to the tax gap; and (4) possible strategies for addressing the tax gap. The statement is based largely on GAO's previous work conducted on tax compliance issues affecting individual taxpayers from 2005 through 2011.

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Cost effectiveness analysisErrorsFederal taxesIncome taxesNoncomplianceReporting requirementsStrategic planningTax administrationTax administration systemsTax expendituresTax lawTax returnsTax violationsTaxesTaxpayersUnderpaymentsVoluntary complianceTax gapUnderreporting