Lack of Resources and Misplaced Priorities at IRS Perpetuate Tax Gap, New Report Shows

PRESS RELEASE
-For Immediate Release-
January 15, 2008

Contact: Brian Gumm, (202) 234-8494, bgumm@ombwatch.org [1]

Lack of Resources and Misplaced Priorities at IRS Perpetuate Tax Gap, New Report Shows

WASHINGTON, Jan. 15, 2008—A lack of enforcement resources and misplaced priorities at the Internal Revenue Service (IRS) are among the factors perpetuating the federal tax gap, according to a new OMB Watch report released today. The report, Bridging the Tax Gap: The Case for Increasing the IRS Budget, illustrates why the IRS has had such a difficult time recovering the more than $300 billion in federal taxes that go unpaid every year. OMB Watch also offers some practical solutions to the problem.

The IRS has the greatest capacity and responsibility to reduce the tax gap. The extent to which the agency can influence the gap is mostly a product of the resources and powers lawmakers in Congress provide the IRS and how well the agency administers those resources and powers. Unfortunately, Congress has done little to give the IRS the tools the agency needs and has not made more vital resources available to address the problem.

Adam Hughes, Director of Federal Fiscal Policy at OMB Watch, explained the problem in further detail. "Because of Congress's unwillingness to address resource shortfalls at the IRS, the agency has been forced to make difficult choices as to how to use the limited resources it has been allocated," said Hughes. "As a result, at the very least, the tax gap remains a large problem, and it has probably increased in size as the IRS has largely scaled back tax law enforcement over the last ten years."

The tax gap represents a major loss of revenue for the government. This loss often causes unnecessary increases in annual deficits and the national debt, increasing national interest payments and adding pressure to cut vital government services. Additionally, much of the gap must be made up through higher taxes on those who follow the law.

According to Bridging the Tax Gap, the IRS is capable of reducing the size of the tax gap — progress that would yield billions in additional revenue each year. The report names three areas of the IRS budget in which Congress and the agency need to invest more resources: audits, collections, and tax preparation services for low-income taxpayers eligible for the Earned Income Tax Credit.

"With sufficient resources," Hughes added, "the IRS should be able to implement effective and efficient tax enforcement policies and programs that will have a real impact on reducing the tax gap."

The full text of Bridging the Tax Gap: The Case for Increasing the IRS Budget is available at /files/budget/irstaxgap2008.pdf [2].

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OMB Watch is a nonprofit watchdog organization dedicated to promoting government accountability, citizen participation in public policy decisions, and the use of fiscal and regulatory policy to serve the public interest.