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GAO-07-423R 1 (2007-03-15)

handle is hein.gao/gaocrptauxi0001 and id is 1 raw text is: Sai Accountability * Integrity * Reliability United States Government Accountability Office Washington, DC 20548 March 15, 2007 The Honorable Max Baucus Chairman Committee on Finance United States Senate The Honorable Charles E. Grassley Ranking Minority Member Committee on Finance United States Senate Subject: Using Data from the Internal Revenue Service's National Research Program to Identify Potential Opportunities to Reduce the Tax Gap The Internal Revenue Service (IRS) most recently estimated that the gross tax gap- the difference between what taxpayers pay in taxes voluntarily and on time and what they should pay under the law-reached $345 billion for tax year 2001.' The tax gap arises when taxpayers fail to comply with their individual income, corporate income, employment, estate, or excise tax obligations through (1) underreporting of tax liabilities on tax returns; (2) underpayment of taxes due from filed returns; or (3) nonfiling, which refers to the failure to file a required tax return altogether or on time. IRS's tax gap estimates are based on a variety of data sources. Recently, IRS studied individual taxpayer compliance through the National Research Program (NRP), and used the resulting compliance data to estimate the tax gap for individual income tax underreporting and the portion of employment tax underreporting attributed to self- employment taxes for tax year 2001.2 NRP, which involved reviewing around 46,000 individual tax returns, has yielded very important new information on taxpayer compliance for the first time since IRS's previous compliance measurement study 'IRS estimated that it would eventually collect about $55 billion of the gross tax gap through late payments and IRS enforcement actions, leaving a net tax gap of around $290 billion. Unless otherwise noted, references to the tax gap refer to the gross tax gap. 2Self-employed individuals are generally required to calculate and remit Social Security and Medicare taxes to the U.S. Treasury each quarter. As employment taxes and income taxes for self-employed taxpayers are largely assessed on the same income, self-employed individuals who underreport their income consequently underreport the employment tax due on that income. GAO-07-423R National Research Program Data

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