Close to 15% of federal taxes — or $385 billion — went unpaid in 2006, according to new estimates by the IRS.
That’s the net tax gap number — meaning what didn’t get paid even after the $65 billion the IRS managed to collect through audits.
And it’s the closest proxy policymakers have to the country’s annual revenue shortfall, said Mark Luscomb, the principal federal tax analyst at CCH, a tax information publisher.
What’s driving the shortfall? A whopping 84% of the total tax gap is due to underreporting of income by corporations, small businesses and individuals.
But underreporting by small businesses and others who report business income on the individual tax return is the biggest single culprit, accounting for more than a quarter of the gap.
The distant second and third reasons for the gap are taxpayers who do not file a tax return at all or underpay what they owe.
Whether mistakenly or intentionally, some taxpayers underreport their income by not including all their receipts, overstating their expenses or claiming incorrect amounts of credits, deductions and exemptions.
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