Tax Gap Calculations in US are Inaccurate

September 17, 2013 Taxation in USA

Tax GapWASHINGTON D.C. – The current calculations and data on the tax gap in the USA are outdated and do not take into account the full extent of tax evasion and tax avoidance.

In a report released on September 16th the US Treasury Inspector General for Tax Administration (TIGTA) said that the Internal Revenue Service needs to improve its calculation of the national tax gap, as currently the information is untimely and potentially inaccurate.

The IRS calculates the national tax gap only once every five years, last being completed and published in January 2012 for the 2006 tax year.

According to the TIGTA, the estimation of the tax gap currently does not include the tax revenues foregone to offshore tax evasion, or the tax gap generated by unreported activities on the informal economy.

The TIGTA added that the most recent figure may also not fully encompass the extent of corporate tax evasion committed in the country, as there are shortcomings in the methodology used to calculate the potential tax gap arising from under-reporting of profits generated by businesses in the country.

The Inspector General suggested that the tax gap should be produced with a greater frequency in order to make the information relevant to the current economy.

The tax gap is an estimate of the difference between all of the taxes owed in the country and the amount of taxes paid voluntarily and on time.

According to the IRS, the tax gap in 2006 for taxes owed and not voluntarily paid was USD 450, and USD 385 billion for taxes owed and not collected.

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