IRS Tax Compliance & Enforcement

IRS Tax Compliance and Enforcement - Ramsay & Associates

Recent years have brought about budget cuts and downsizing within the Internal Revenue Service. However, the agency’s priority remains tax compliance and enforcement in an effort to close the nation’s tax gap.

What is a tax gap?

A tax gap is the difference between the amount of taxes owed by taxpayers and the amount that the IRS actually collects. Each year, the government loses about $458 billion due to underreported income, underpaid taxes, or people not filing returns at all. International noncompliance adds to that total.

A 2010 IRS study shows that taxpayer filing and payment compliance, known as the voluntary compliance rate, is approximately 82 percent. This year’s voluntary compliance rate target is 86 percent.

Tax compliance by the numbers

  • 7.5 million people who receive information statements (such as a W-2 or 1099) do not file their required tax return each year.
  • The number of cash-based workers and small business non-filers (who don’t receive 1099s or W-2s and are “off the grid”) is unknown. However, the IRS may renew interest in obtaining this information based on recent studies.
  • 19 million individuals and businesses owe $398 billion to the IRS.
    • One-third of these have payment or deferral arrangements with the IRS.
    • One-third owe taxes and have not paid; the IRS is actively pursuing payment.
    • The IRS is not pursuing payment from the remaining one-third.
  • 24 million Forms 1040 do not report all income.
  • The IRS issues 40 million penalties to 27 million taxpayers each year. The most common penalties are:
    • Failure to pay (56%)
    • Estimated tax (30%)
    • Failure to file (10%)
  • The IRS audits fewer than one percent of returns.
  • The IRS conducts three out of every four audits through correspondence.

Despite budget cuts to the IRS as well as its declining audit rate, the IRS will continue its efforts to close the tax gap with improved compliance. At Ramsay & Associates, our tax services go beyond preparing an accurate and timely tax return. We can assist both businesses and individuals with any compliance issues, should they arise. Contact us to learn more about our business and personal tax preparation and planning services.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.