#LEVELS OF SCRUTINY CHART HOW TO#
Moreover, the wealthy tend to have more complex returns, with income accruing in opaque categories not subject to the kind of information reporting known to promote compliance, including pass-through income (income from sources such as S corporations, partnerships, and sole proprietorships).ĭecisions about how to enforce the tax code may appear race neutral but can significantly affect racial inclusion and equity. High-income individuals generally have the largest tax liabilities and thus the discrepancy between what is owed and what is paid is greater, as is their incentive to avoid and evade taxes. That’s because the IRS estimates the tax gap using data collected from random audits, which “do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top.” By more fully accounting for these types of tax evasion, the researchers estimate that the top 1 percent of individual taxpayers likely underreport around 20 percent of their income, far higher than IRS tax gap estimates suggest. Similarly, new research from IRS and outside economists suggests that the extent of wealthy households’ tax evasion is considerably larger than existing IRS estimates. Despite modest increases in the past few years, funding remains 19 percent below the 2010 level, adjusted for inflation. The IRS’ budget has been cut dramatically. Focusing on Low-Income Filers Is Unfair and Inefficient.The Amount of Unpaid Tax is Large and Growing.The IRS Can’t Perform Basic Government Functions.
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This chart book illustrates how the IRS, particularly its enforcement function, has been depleted, and details the pressing need to enact major legislation to rebuild. Moreover, a rebuilt and modernized IRS, combined with enhanced reporting requirements, would help restore the nation’s depleted revenue base - collecting taxes that are legally owed - to fund national priorities. A rebuilt IRS could help restore public trust in the fairness of the tax system by responding in a timely, effective manner to taxpayer questions and enforcing the nation’s tax laws fully so that everyone pays the taxes they owe, just as the vast majority of taxpayers and businesses do voluntarily. The tax gap - the difference between taxes owed and taxes paid - is large and growing.As a central piece of the federal government’s infrastructure, the IRS needs to be rebuilt. As a result, the tax gap - the difference between taxes owed and taxes paid - is large and growing. The agency’s workforce has been sharply reduced, and audit rates, especially for large corporations and high-income taxpayers, have plummeted.
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The IRS budget has been cut dramatically over the past decade, severely undermining the agency’s ability to perform its fundamental jobs of enforcing the nation’s tax laws and helping taxpayers navigate a tax system that relies on voluntary compliance. For more on how to rebuild the IRS, see: Rebuilding IRS Would Reduce Tax Gap, Help Replenish Depleted Revenue Base. This chart book provides background on the depletion of the IRS.