IRS Claims Tax Gap Amounts to Hundreds of Billions

The numbers are in and the IRS has a pretty good idea what the tax gap is for 2008 to 2010. In late April 2016, the IRS announced that the gross tax gap is close to $458 billion (totalling $406 billion net).

What Is the Gross Tax Gap? 

The IRS defines the “gross tax gap” as being comprised of three separate components: 

  1. Underreporting (accounting for $387 billion)
  2. Underpayment (accounting for $39 billion)
  3. Nonfiling (accounting for $32 billion) 

The IRS Does Not Get It Right 100% of the Time

The IRS may be a government agency, but it is not infallible.

Nonfiling: The IRS has stated that many individuals who do not need to file a tax return still do because they are not aware of the requirements. These requirements may change annually but it is still important for individuals to understand when they may or may not need to file. 

Whether or not you need to file each year depends on your: 

  • Filing status (single or married)
  • Age
  • If you are eligible for a tax refund or for the EITC
  • If you are self-employed and made a certain amount of money for that year
  • If you owe social security and Medicare tax on tips which were not reported to your employer

Underpayment: If you are self-employed, then you need to figure out how much you need to pay when tax season rolls around. Doing this four times a year can be difficult, and if you pay less than the IRS thinks you owe, you can be hit with a penalty when you do file your return. A tax attorney will see if you qualify for an exception and if it is even necessary to pay the amount that you are. 

Underreporting: The IRS has a variety of ways to verify the income which a taxpayer reports on his or her return. There are times when taxpayers may misidentify what is considered to be “income” and not report it, and there are times when the IRS may have incorrect information. 

If you have been threatened with penalties by the IRS, you are not alone, and the Scammahorn Law Firm is here to help. Scott Scammahorn and his team provide confidential professional tax law services across all of Texas and are available to take your call at (903) 595-1000.