Federal “Tax Gap” Is Growing

The tax gap is the spread between what the government thinks it should be collecting (what’s truly owed) and what it actually collects. The gap results from 3 things: nonfiling, underreporting income (e.g., omitting income; overstating deductions and credits), and underpaying (e.g., not paying self-employment tax when due). The latest figures show the tax gap at a projected $696 billion. This is $200 billion increase over prior projections. A methodology report notes: “The tax gap estimates may be understated with respect to flow-through income (S corporation and partnership income).” Will this latest tax gap spur more audits? #IdeaoftheDay

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