The Internal Revenue Service (IRS) is making progress in crafting a strategy to reduce the tax gap, but significant challenges remain in implementing it, according to a new report from the Treasury Inspector General for Tax Administration (TIGTA).
The IRS defines the tax gap, estimated at approximately $345 billion, as the difference between what taxpayers are supposed to pay and what is actually paid. While the United States has one of the highest tax compliance rates in the world (83.7 percent), each percentage point of noncompliance costs the Federal Government approximately $21 billion in lost revenue.
In August 2007, the IRS outlined a seven-prong strategy to reduce the tax gap that included increased information reporting by taxpayers, additional research programs, and business system modernization. TIGTA reviewed the IRS's strategies, plans and actions for reducing the tax gap.
"While we are encouraged by the development of a detailed strategy to reduce the tax gap, long-term success will depend on the IRS's ability to address several risk factors, some of which are beyond its control," said TIGTA's Inspector General J. Russell George.
According to the TIGTA report, the IRS's strategic plan to reduce the tax gap is largely predicated on receiving funding for additional compliance resources and enactment of legislative changes. Furthermore, sizable efficiency gains in taxpayer service and compliance resources are dependant on the successful implementation of information technology enhancements and the IRS's ability to manage other risks. TIGTA did not make any recommendations in this report.
The Treasury Inspector General for Tax Administration (TIGTA) oversees IRS, the IRS Oversight Board, and the IRS Office of Chief Counsel. TIGTA's Inspector General reports to the Secretary of the Treasury and Congress. TIGTA's mission is to protect the integrity of Federal tax administration, keeping it free from corruption and threats that could come from internal or external sources and from illegal and unethical activity. TIGTA also promotes the efficiency, effectiveness, and economy of tax administration.