Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap Page: 8 of 27
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significant reduction of the tax gap would likely depend on an
improvement in the level of taxpayer compliance.8
Congress has been encouraging IRS to develop an overall tax gap
reduction plan or strategy that could include a mix of approaches like
simplifying code provisions, increased enforcement, and reconsidering the
level of resources devoted to enforcement. Some progress has been made
toward laying out the broad elements of a plan or strategy for reducing the
tax gap. On September 26, 2006, the U.S. Department of the Treasury
(Treasury), Office of Tax Policy, released "A Comprehensive Strategy for
Reducing the Tax Gap." However, the document generally does not
identify specific steps that Treasury and IRS will undertake to reduce the
tax gap, the related time frames for such steps, or explanations of how
much the tax gap would be reduced. Furthermore, the document
mentioned the importance of establishing benchmarks against which
progress on each step under the strategy could be measured. It said that
after the fiscal year 2008 budget request was released, Treasury and IRS
would issue more details in March or April 2007 about the steps they
would take to reduce opportunities for evasion and address the tax gap.
The 2008 budget request issued on February 5, 2007, suggested 16
legislative changes to expand or improve information reporting, improve
compliance by businesses, strengthen tax administration, and expand
penalties. It also proposed additional funding for new initiatives aimed at
reducing the tax gap.Multiple Approaches
Are Needed to Reduce
the Tax GapNo single approach is likely to fully and cost-effectively address
noncompliance and therefore multiple approaches are likely to be needed.
The tax gap has multiple causes; spans five types of taxes; and is spread
over several types of taxpayers including individuals, corporations, and
partnerships. Thus, for example, while simplifying laws should help when
noncompliance is due to taxpayers' confusion, enforcement may be
needed for taxpayers who understand their obligations but decline to
fulfill them. Similarly, while devoting more resources to enforcement8In some instances, the amount of the tax gap can change without a corresponding change
in the level of compliance. For example, a reduction in marginal tax rates could result in a
smaller tax gap even if the level of compliance remains unchanged because the amount of
taxes that should be paid has been reduced. The tax gap would also tend to increase over
time, even if the rate of taxpayer compliance remained unchanged, because of inflation.GAO-07-488T
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United States. Government Accountability Office. Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap, text, February 16, 2007; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc291643/m1/8/: accessed April 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.