IRS to tackle $311B tax gap in 2006

The IRS Oversight Board acknowledged last month that the Internal Revenue Service has challenges ahead in fiscal 2006 as the agency continues to strengthen enforcement activities and taxpayer services while addressing a gap in unpaid taxes.

“Since its inception, the Oversight Board has called for balance between service and enforcement and is gratified that the IRS has made good progress in the past several years in both areas,” said Raymond Wagner, the board’s chairman, in a press release. “However, now is not the time for the IRS to sit on its laurels.”

The IRS must tackle the $311 billion gap between the amount of taxes owed and taxes paid. To reduce the gap, the IRS will need to boost compliance by toughening enforcement and making services more efficient, Wagner said.

Congress mandated several stipulations when it passed the IRS’ fiscal 2006 budget, which is $10.7 billion. They set specific goals for spending on enforcement and limit the IRS’ ability to cut taxpayer services.

At a Senate Finance Committee hearing in April, Sen. Max Baucus (D-Mont.) said the IRS cannot simply increase enforcement by conducting more property seizures and issuing more liens. Instead, he said, “ensuring more upfront quality is more efficient than back-end enforcement.”

Taxpayers share the same opinion. In a poll conducted by the board in 2004, two-thirds of taxpayers support additional funding for enforcement and even more for taxpayer assistance.

The National Research Program briefed the board about the gap’s status and future estimation. The organization is an IRS program that collects data to help the agency run better.

The IRS released its preliminary findings in a report earlier this year and continues to work to understand the causes of noncompliance, particularly on underreporting income and failing to file tax returns. The agency plans to begin a new study next year to focus on S corporations, which accounted for 59 percent of all corporate tax filings in 2002.

At the board’s November meeting, it discussed the IRS’ five-year plan to meet the demands of 21st-century tax administration by strategically selecting and training a skilled workforce and providing them with the necessary tools.

The plan, which is in development, needs to set goals that show how the agency will foster employee advancement. The board reviewed an independent accounting and consulting firm’s executive assessment of the IRS’ search for future agency leaders.

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