Are We Finally Lifting the Secret IRS Veil on Un-Paid Taxes?

The Tax Gap Increases to $450 Billion

By Children’s Home Society of Florida Foundation

By Dr. David Edward Marcinko MBA, CMP

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Each year the IRS conducts a survey to determine the amount of unpaid taxes. The “tax gap” is defined as the amount of taxes that are owed by taxpayers but not paid on time.

2006 Results

For the year 2006, revised figures released this week showed that the tax gap increased.  The previous estimate of the 2006 tax gap was $345 billion but it increased to $450 billion. The “net tax gap” is a smaller number that reflects the ability of the IRS to collect some of the unpaid taxes.  When the additional $65 billion in taxes collected later is subtracted from the $450 billion, the net tax gap is $385 billion.  The net tax gap number increased from $290 billion in 2001 to the larger number by 2006.

Tax Compliance Level

The compliance level for taxpayers remains 83.7%.  This indicates that the majority of Americans are continuing to calculate and pay their taxes correctly.

Sen. Max Baucus (D-MT) is Chairman of the Senate Finance Committee.  He responded to the IRS survey by noting,

“This report shows that closing the tax gap needs to be a major focus of tax reform.  An improved tax code that’s simple and fair to all Americans will help close the tax gap, boost our economy and create jobs.”

Editor’s Note: 

Both Sen. Baucus and House Ways and Means Committee Chair Dave Camp (R-MI) have been conducting hearings that will lead to major tax reform in 2013.  For the vast majority of Americans who pay their fair share of taxes, it is beneficial if Baucus and Camp are able to simplify the tax system and reduce the tax gap.  More effective collection of revenue decreases the need to raise taxes on those who are currently paying their fair share.


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2 Responses

  1. IRS Free File System Available

    On January 17, 2012, the IRS announced that the Free File System is now available. There are two versions to help taxpayers. Those individuals with adjusted gross incomes of $57,000 or less can use the Free File Software System. All taxpayers with incomes of any level are permitted to use the Free File Fillable Forms.

    Diane Fox, Director of the IRS Free File Program stated, “Free File can save you time and money. You can prepare and e-File your tax returns at no charge. And the software helps you find the tax breaks you are due. Free File helps make taxes less taxing.”

    An estimated 70% of taxpayers qualify for the Free File System. Under an agreement between the IRS and approximately 20 tax software providers, there are options available to use one of those software systems on The tax software providers must meet specific government standards and must qualify with the required security systems. Information transferred over the Internet must be appropriately encrypted so it is protected.

    Taxpayers of any income level may use the Free File Fillable Forms from the site. These forms include some basic calculations and links to IRS publications. The Fillable Forms system requires a basic understanding of the IRS tax forms.

    Source: Children’s Home Society of Florida Foundation

    PS: Very cool photo, above!


  2. Why investors pay lower taxes

    Congress has long set a lower tax rate for investment income, citing the benefit to the economy. But, 87% of capital gains are claimed by people making more than $200,000 a year.

    And, what percent are physicians?



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