Wanted: A tax gap strategy
Despite performing admirably in a difficult environment, the
Internal Revenue Service still needs to improve on strategies to
narrow the tax gap and hone its information technology sys-
tems, according to the IRS Oversight Board’s recently released
2009 annual report.
The report evaluates the IRS’s performance
in 2009, describes the challenges facing tax
administration, and provides scorecards on
IRS effectiveness during the past year.
“Overall, the IRS had a challenging year in
2009, but performed fairly well,” said Oversight Board chairman Paul Cherecwich Jr.
Although the number of audits for both
individuals and businesses increased, total
enforcement revenues dropped from $56.4
billion in fiscal year 2008 to $48.9 billion in
FY2009. However, this is due to the fact that
revenues were abnormally high in the last
few years as a result of large tax shelter settlements, according to Cherecwich.
“These artificially boosted collections,” he
explained. “The audit results from last year
are more in line with historic audit results.”
The tax gap and information technology
continue to be weaknesses that need to be
addressed, said the Oversight Board’s report.
The annual tax gap is the difference between
the amount of tax that taxpayers should pay
and the amount that is paid voluntarily and
“The IRS collects 96 percent of federal
revenue. Taxpayers who do not meet their
tax obligations cost the U.S. government
$290 billion every year, or an average of over
$2,600 per household,” the report stated.
“To the extent that the IRS can reduce this
uncollected tax revenue — or tax gap, as it
is known — economic benefit is provided to
the vast majority of taxpayers who pay what
they legally owe.”
In fact, the $290 billion estimate of the tax
gap is several years old, and may not reflect
current conditions, Cherecwich indicated.
“The board has requested that the IRS plan
to update the gap on an annual basis, beginning next year,” he said. “They do a statistical analysis on audit results, and they have
a multi-year history as part of the National
BY ROgeR RuSSell
The IRS Oversight Board issues its 2009 report on the tax service
PTINS VS. THE TAX GAP
The IRS has taken actions in the past year that
have the potential to reduce the tax gap, he
pointed out. “The preparer regulation program will be beneficial. The preparer regulations will help improve the integrity of our tax
system,” he said.
Beginning in 2011, paid tax return preparers must use a preparer tax identification
number, or PTIN, for returns filed or claims
submitted, and preparers who are not CPAs,
attorneys or enrolled agents will eventually
be subject to testing and continuing education requirements.
“It’s important to stay on top of the tax gap
number, given everything that’s happened to
the economy,” said Paul Cinquemani, direc-
tor of government relations for the National
Association of Tax Professionals. “And we’re
pleased the IRS is moving on the tax preparer
end of the equation. To the extent that there
are unscrupulous and incompetent prepar-
ers, it will aid in reducing the gap.”
However, the optimal tax gap may not be
zero, observed Robert Kerr, senior director
of government relations for the National As-
sociation of Enrolled Agents. “We wouldn’t
want to live in a world in which there was a
zero tax gap, since it would require far too
stringent enforcement measures. There is
room for improvement, however, and the
agency is moving forward in measuring it.”
Kerr noted that the tax service is conduct-
ing employment tax audits for the first time
in decades. “By having better measurements
of the tax gap, you find out where your prob-
lems are,” he explained. “Then you can cre-
ate a strategy to address where the weak-
overseas,” Cherecwich said.
SMALL CHARITIES GET
EXTENSION ON IRS DEADLINE
WASHINGTON, D.C. — IRS Commissioner
Doug Shulman indicated that small charities that missed the May 17 filing deadline for filing their Form 990 might still be
able to keep their tax-exempt status.
Hundreds of thousands of nonprofit
organizations are in danger of losing their
tax-exempt status because they haven’t
filed the 990 or one of its variations in
the past three years. The Urban Institute
estimated that 214,000 charities were in
danger of losing their tax-exempt status
if they didn’t file the form by May 17, and
another 126,000 by the end of the year.
Shulman acknowledged that many
small charities were not aware of the
requirement, however, and said that they
should still go ahead and file the forms,
even if they have missed the deadline.
“Now that the May 17 filing deadline
has passed, it appears that many small
tax-exempt organizations have not filed
the required information return in time,”
he said. “These organizations are vital to
communities across the United States,
and I understand their concerns about
possibly losing their tax-exempt status.”
HIDDEN ASSETS OVERSEAS
“The second major activity toward reducing the tax gap has been in connection with
efforts to identify assets and wealth hidden
Both the Government Accountability Office
and the Treasury Inspector General for Tax
Administration have made note of the IRS’s
need for better information technology, the
“Information technology is one of the
biggest challenges for the IRS,” said Cherecwich. “It has been slow going due to lack of
IRS NAMES NEW MEMBERS
OF ACT COMMITTEE
WASHINGTON, D.C. — The Internal
Revenue Service has selected four new
members of its Advisory Committee on
Tax-Exempt and Government Entities
for the term starting in 2010 and ending
in 2012. Committee members generally
serve a two-year term with a possible
one-year extension. The four new participants will join 17 returning members in
2010. The new members are:
David N. Levine, of Washington,
D.C. Levine is a principal at Groom Law
Adam C. Pozek, of Reading, Mass.
Pozek is vice president of consulting
services for Sentinel Benefits & Financial
Karen A. Gries, of Minneapolis.
Gries is a principal with accounting firm
Celia Roady, of Washington, D.C.
Roady is a partner in the law firm Morgan
Lewis & Bockius LLP.