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IRS Currently Planning Enforcement Action to Address a Projected 441 Billion Dollar Non-Compliance Driven Tax Gap

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IRS Currently Planning Enforcement Action to Address a Projected 441 Billion Dollar Non-Compliance Driven Tax Gap

Many hard-working Americans who always pay their taxes may be shocked by the amount that the IRS projects goes unpaid. In recent years, there has been increasing focus on the “tax gap,” or the difference between the amount estimated to be due in taxes each year and the amount actually paid. As the tax gap has gotten more and more press, it has caused anger and frustration amongst individuals and businesses that work hard to file their returns properly and pay their taxes, perhaps with the help of a Dual Licensed Tax Attorney and CPA like those at the Tax Law Offices of David W. Klasing.

The alarming news for non-compliant taxpayers is that recent increased lobbying to elected officials over this tax gap has led to increased funding for IRS enforcement action to be taken against those who do not pay what they owe, as well as new initiatives micro-targeted at particular areas where enforcement has been seen as lacking. For this reason, if you have unpaid taxes, failed to file your returns or filed incomplete or willfully evasive tax returns in recent years, now is the time to reach out to us to take the proactive corrective actions necessary to mitigate the financial damage as much as possible and avoid an audit or potential criminal tax investigation / prosecution.

Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

Explanation of the Tax Gap

The IRS will occasionally release a report on the tax gap, the most recent of which was released in 2019 and covered calendar tax years 2011–13. For those years, the average annual gross tax gap was reported to be $441 billion at the time that taxes were due, which amounts to slightly over 16 percent of the projected total tax liability. Because the IRS eventually recovered $60 billion through voluntary late payments and enforcement activities, the average annual net tax gap for these years dropped in the ensuing years to about $381 billion, or about 14 percent of total tax liability, by the time the above report was released.

The report also delved further into the specific types of activity, or inactivity, driving the tax gap. The non-filing tax gap was estimated at $39 billion, the underreporting tax gap was $352 billion and the underpayment tax gap was $50 billion. In terms of the various different types of taxes, the estimated gross tax gap for individual income tax was estimated at $314 billion, the tax gap for corporate income tax was $42 billion, the tax gap for employment tax $81 billion, and the tax gap for estate and excise tax combined was $3 billion.

One issue in dealing with the tax gap has been the funding gap within the IRS itself forcing it to cut enforcement activities. As one analyst at the Tax Policy Center put it, “Congress has cut the IRS budget by about 20 percent in constant dollars since 2010. At the same time, Congress is asking the IRS to do far more with less. For example, Congress gave the agency a major role in administering the 2010 Affordable Care Act, the Foreign Account Tax Compliance Act, and other legislation that expanded IRS responsibilities. Since 2010, though, Congress has cut IRS funding even as the IRS confronted a surge in stolen identity refund fraud and, recently, over a billion cyberattacks yearly. Without adequate resources, the IRS suspended efforts to pursue non-filers and suppressed collection notices and levy notices because it couldn’t handle the phone calls and correspondence they prompted. All of these steps resulted from constrained funding and, collectively, they significantly shrank the IRS enforcement footprint.”

How the Tax Gap Might Affect You

As calls have increased for the IRS to deal with the tax gap, the agency has used these reports to micro-target specific areas where a certain type of behavior is contributing to the tax gap at a very high rate. For example, according to the Tax Policy Center, nearly half of the amount of individual income that went underreported, about $125 billion, comes from underreporting “by pass-through business filers such as sole proprietors, farmers, and those earning rental, royalty, partnership, and S-corporation income. They are prime targets for stepped-up enforcement.” If you fall into one of these categories and you have failed to report your income and assets correctly on past returns, it is vital that you reach out to a skilled Tax Attorney like those at the Tax Law Offices of David W. Klasing before the agency begins an investigation or audit into your behavior. Once an audit or criminal tax investigation has begun, mitigating the damage will become much more difficult (if not impossible) and you will likely end up facing high fines and even criminal tax charges if your behavior is deemed to have been willful.

If You Have Contributed to the Tax Gap by Failing to Report or Pay What You Owe, Reach Out to Our Experienced Tax Attorneys Right Away

Recently, the IRS has announced a step-up in criminal tax enforcement in several areas. There is every reason to think that, as the agency recovers from the economic toll of the pandemic, enforcement will increase even more so in an effort to ensure the tax gap does not widen due to the unforeseen circumstances of 2020. The best thing you can do if you are behind on taxes or have submitted false or misleading returns is to reach out to a battle-tested tax professional like those at the Tax Law Offices at David W. Klasing. Once we have assessed the particulars of your situation, we can help decide which solution is right for you, from amending your returns to a voluntary disclosure program to something else. To set up a consultation, call us today at (800) 681-1295.

We Are Here for You

Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.

Our office technology allows clients to meet virtually via GoToMeeting. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office at (800) 681-1295 and request a GoToMeeting if you are an existing client.

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