The government uses the tax gap to mean the difference between the total amount of taxpayers ‘money they believe they owe if taxpayers were properly filed and the total amount of taxpayers’ money they would then actually receive. If the government fails to collect the fair amount of tax debt, they assume they will lose money in a given year. To close the tax gap, the government needs to increase funds for civil and criminal investigative activities to find and try to reclaim this lost money.
Biden’s government publicly and repeatedly claims that it is trying to fill the tax gap, so it logically follows that the rate of criminal tax proceedings and civil, eggshell and reverse eggshell audits should increase significantly. To do this, the IRS is hiring 86,000 additional IRS agents nationwide and their budget has increased significantly for the first time in several tax years.
If you are concerned about a possible increase in civil and criminal tax investigative measures by the IRS to combat the growing tax gap, you should seek our help. The experienced, double-licensed tax attorneys and auditors at the tax offices of David W. Klasing Stay up to date on current IRS trends so we can predict how they may affect our current and future customers. To prepare your finances for higher government oversight and to reduce or eliminate the risk of tax prosecution, call us today at (800) 681-1295 or make an appointment online here.
Why is there a tax gap?
The tax gap arises when taxpayers intentionally fail to disclose their taxable income, thereby fraudulently paying less tax to the IRS. The tax gap is usually measured annually and is based on taxable income that the IRS expects to be reported honestly in a given year.
In March 2021, the National Bureau of Economic Research (NBER) published a report entitled “Tax Evasion at the Top of Income Distribution: Theory and Evidence”. The report found that tax evasion was so high at the highest income levels that administrative intervention would be required to close the tax gap. According to the report, the top 1% of annual earners fail to report an estimated 21% of their annual income. The members of the top 1% of earners earn on average $ 1.7 million per year. Statistically about $ 340,000 this income is not reported to the federal government. While 1% may not seem essential, it is well over a million taxpayers in The United States.
The report suggests administrative measures in the form of an increase in the budget and the functioning of the IRS to track unreported income in the top tier of taxpayers. According to the report, an increase in the IRS budget would reduce the need to hike tax rates.
How does the government intend to close the tax gap?
Following the report and advice from tax officials, the Biden government has made clear its intention to close the tax gap through several rounds of budget increases for its tax inspectorate.
Over the next 10 years, the Biden government hopes to add RS to the IRS base budget $ 80 billion. The plan includes an immediate one $ 900 million Injecting money into the Criminal Investigation Department of the IRS for the purpose of tightening criminal enforcement of taxes.
The additional funding will help the IRS in a number of ways. Crucially, it will allow the agency to modernize by adding the technological capabilities needed to pursue more sophisticated and complex workaround plans that were previously undetectable. The IRS will also use the budget increase to hire additional staff and conduct more civilian eggshell and reverse eggshell audits. Casting a wider web is a critical action for the IRS to expose non-compliance with tax law.
The fresh money will also make its way into the courtroom as the IRS plans to use its expanded capabilities to tackle appeal complaints and bring more criminal tax proceedings because of the deterrent effect this has on the public in general. Increased law enforcement rates will result in more fines and will also act as a warning to potential tax evaders. The federal government hopes that the publication of its new, aggressive way of working will deter taxpayers from shortening the system and thereby closing the tax gap.
What does an increase in IRS funding to bridge the tax gap mean for you?
The federal government is not only taking these steps to punish taxpayers. It hopes to make up for the lost revenue. Proponents of the increase in the IRS budget suggest that the government’s additional measures could raise extra money $ 175 billion per year. The government will only live up to this hype if it is able to find and punish violators. So you will be looking for every opportunity you can find.
Before it’s too late, make sure you are compliant with all aspects of the tax code. This means a thorough compliance review of your previous filings and stricter due diligence on all future tax preparations.
If you are concerned that some of your previous tax returns with the IRS may not be compliant, and are concerned about more frequent audits and tax criminal investigations, you should consider voluntary disclosure. With voluntary disclosure, a taxpayer willingly through a tax advisor reports errors and mistakes in previous filings to the IRS without incurring a criminal tax liability. Disclosures often face relatively lower penalties than if their non-compliance had been exposed through enforcement measures. You should never attempt voluntary disclosure to the IRS without the skilled assistance of a tax attorney, as this can create even more trouble for you if the process is handled incorrectly.
Protect yourself from Biden’s efforts to close the tax loophole
Whether or not you’ve complied with the tax rules, the IRS is coming. Engage the award-winning, double-licensed tax lawyers and auditors at the tax offices of David W. Klasing to ensure you and your family are protected from civil and criminal tax audits and criminal tax investigations by the IRS. Call our office today at (800) 681-1295 or arrange a discounted initial consultation here online.
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Public contact: Dave Klasing Esq. MS Tax CPA, [email protected]
SOURCE Tax Firms of David W. Klasing, PC