Reducing the Tax Gap

The Internal Revenue Service (IRS), within the Department of the Treasury, faces a large and persistent tax gap. IRS estimates the net tax gap, which was last measured in 2001, to be $290 billion. The tax gap has remained in the neighborhood of 16 percent to 19 percent of total revenues for three decades. In 1990, GAO designated enforcement of tax laws as a high-risk area. Enforcement of tax laws remains on the high-risk list primarily because of the challenges associated with dealing with the nation�s large and persistent tax gap.

Highlights of GAO-09-271 (PDF)

• Ensuring that tax laws are adequately enforced is vital to reducing the nation’s $290 billion tax gap.
• Multiple approaches are needed to address the tax gap.

  Highlights of GAO-07-488T (PDF)

• Real progress in reducing the tax gap will require enhanced IRS techniques and new legislative actions.

  Highlights of GAO-06-453T (PDF)

• IRS needs a better understanding of the changes in compliance levels from its enforcement efforts.
  
• Expanding taxpayer services in specific ways, such as by clarifying guidance or forms and otherwise educating taxpayers about tax requirements that are confusing or commonly misunderstood, would improve accuracy.

Figure 2: Tax Gap as of 2001

^ Back to topWhat Needs to Be Done

Treasury, in coordination with IRS, needs to

• continue to pursue the wide range of initiatives in its updated strategy for reducing the tax gap, including
• devoting additional resources to tax law enforcement and optimizing IRS’s use of its enforcement resources;
  
  
• better identifying paid tax-return preparers;
  
  
• designing additional information reporting, such as making taxpayers that report rental real estate subject to same information reporting requirements as those in a trade or business;
  
  
• devising strategies to address noncompliance by certain taxpayers, such as sole proprietors whose misreporting represents a large part of the tax gap; and
  
  
• evaluating results of any initiatives.
  
  
• develop better data that point to the most significant areas of the tax gap; lacking data, such as the reasons for noncompliance, makes it more difficult to target strategies.

  Highlights of GAO-06-208T (PDF)

• provide services to help taxpayers comply with tax laws.

  Highlights of GAO-07-488T (PDF)

• simplify tax laws.

  Highlights of GAO-07-488T (PDF)

• consider developing more enforcement tools and providing more enforcement resources, so that IRS can use such tools.

  Highlights of GAO-06-453T (PDF)

^ Back to topKey Reports

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Tax Administration

Real Estate Tax Deduction

Home Mortgage Interest Deduction

Highlights of the Joint Forum on Tax Compliance

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