IRS measures $345 billion gap between taxes owed, taxes paid

Tuesday, February 14th 2006, 1:36 pm
By: News On 6

WASHINGTON (AP) _ The IRS said Tuesday that unpaid taxes amounted to $345 billion in 2001, traced mostly to individuals underreporting their income.

The statistic refines an estimate released last year that found taxpayers failed to pay between $312 billion and $353 billion in 2001.

``We've come in at the high end of that range,'' IRS Commissioner Mark Everson told reporters.

The study showed taxpayers much more likely to report their income when an employer, banker or other party must separately submit the information to the Internal Revenue Service. The study found only a 1 percent error rate among individuals reporting the wages, salaries or tips to the tax agency.

The error rate proved much higher, however, among individuals reporting income from a business.

``What you have is a rate where about half the income doesn't show up,'' Everson said. ``That is a very, very significant noncompliance rate.''

Late payments and IRS collections can recover about $55 billion in unpaid taxes, leaving a net gap of about $290 billion.

The IRS estimated the tax gap, the difference between taxes owed and taxes paid, after auditing 46,000 people and combining those findings with previous estimates of unpaid corporate, payroll and unemployment taxes.

President Bush laid out some ideas in next year's budget, recently submitted to Congress, for shrinking the gap between taxes owed and taxes paid.

Everson said the complexity of tax laws played a role. The IRS cannot yet say how many errors stem from deliberate misstatements or misunderstanding of tax laws.

``Helping taxpayers better understand their obligations under the current tax law will facilitate compliance, but simplifying the tax code would have a big impact on reducing the tax gap,'' he said.