FAQs

The following are a collection of facts, frequently asked questions (FAQs) and myths vs. realities concerning the tax gap.

 

Fact:  The current source for data on the Tax Gap is provided by the IRS and is located on its website at:  IRS Tax Gap Information

 

Myth:  The Tax Gap is a $345 billion a year problem.
Reality:  The net yearly outstanding Tax Gap is reported by IRS to be $290 billion.  $55 billion is collected through routine IRS compliance procedures. 

 

Myth:  Most small businesses are responsible for the Tax Gap.
Reality:  The vast majority of small businesses are compliant taxpayers.

 

Fact:  According to the SBA Office of Advocacy, the cost per employee of tax compliance for large firms is $780 per employee.  For small business with less than 20 employees, the cost is $1304 per employee, 67% more.

 

Fact:  According to a detailed study by the Tax Foundation in 2005, individuals, businesses, and non-profits spent an estimated 6 billion hours complying with the federal income tax code at an estimated cost of over $265.1 billion.

 

Fact:  Businesses pay 55.7% of tax compliance costs according to a study by Hodge, Moody and Warcholik.

 

Fact:  Since 2001, the overall tax compliance rate has remained steady around 85%.  But IRS enforcement revenue has changed dramatically, rising from $33.8 bil to $47.3 bil in 2005, a 40% increase.