Taxpayer Compliance: Analyzing the Nature of the Income Tax Gap

GAO discussed the income tax gap, the difference between income taxes owed and those voluntarily paid. GAO noted that: (1) the Internal Revenue Service's (IRS) data suggest that U.S. taxpayers voluntarily pay about 83 percent of the income taxes they owe and ultimately pay about 87 percent after IRS enforcement programs; (2) this compliance level, in combination with economic growth, translates into billions of tax gap dollars; (3) IRS estimates show that voluntary compliance in reporting income varies across groups of individuals; (4) IRS data show that compliance is highest under tax withholding, a little lower without withholding but with information reporting to IRS, and much lower when neither system is in place; (5) in addition to the relative visibility of the income to tax administrators, other factors also influence the level of compliance; (6) IRS faces many challenges in reducing the income tax gap; (7) collection of some of the tax gap might require either more intrusive record keeping or reporting than the public is willing to accept or more resources than IRS can commit; and (8) it is important that IRS know as much as possible about current compliance with the tax laws and use that knowledge to focus its resources in a cost-effective way.