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Government Estimates $290 Billion in Missing Tax Revenue

The government continues to grapple with an estimated $290 billion gap between the amount of tax revenue it is supposed to receive and what it actually collects. Tax experts explain why the gap exists and what should be done to close it.

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    How much should Americans pay in taxes? How much do they actually pay? According to the IRS, there is a $290 billion gap between those two numbers. What causes it? And can the government get the money back?

    For that, we turn to Nina Olson. She's the national taxpayer advocate at the Internal Revenue Service. And Giovanni Coratolo, he's executive director of the Council on Small Business at the U.S. Chamber of Commerce.

    Why does this gap exist and what causes it, Nina Olson?

  • NINA OLSON, National Taxpayer Advocate:

    Well, there are lots of different causes of it. It could be that the taxpayers don't understand the tax laws, they're so complex. It could be that the procedures that we ask taxpayers to follow are too complex. It could also be just out-and-out tax evasion. And it could simply be the result of taxpayers not being able to save money in order to pay their taxes timely.


    So this is people who are setting out to defraud the government or people who just accidentally have somehow not paid everything that they owe?


    Well, nobody really knows what the breakdown is between inadvertent non-compliance and intentional, evasive-type non-compliance. That's one of the things that my office has really encouraged the IRS to do the kind of research on, because if you don't know that, you won't know how to correct that problem. You won't know the right touch, if you will, to the taxpayer to get them to become compliant.


    Is this a problem for individuals or a problem for business mostly, the bulk of this number?


    Well, for individuals, particularly wage-earning individuals, people who get W-2s at the end of the year and are subject to withholding, we see about 99 percent of the taxes and reported — we see 99 percent of the income that is reported on those W-2s that is reported on those W-2s that is also reported on their income tax returns.

    But once you get into small business, and particularly sole proprietorships, where they may not be subject to income reporting even, you will find that there's a greater non-compliance rate. So, in fact, the unincorporated businesses are a very large portion of the tax gap.