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How the US Government Plans on Collecting Taxes to Close the Tax Gap

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    The difference between the taxes estimated to be owed and taxes actually paid in the United States is substantial. The discrepancy is so substantial that the federal government is taking action to address the issue. Taxpayers should be interested in how the IRS hopes to recoup its lost revenue stream, because it will impact how potential tax evasion situations will be monitored and investigated in the near future.

    Congress is currently hearing testimony from treasury and IRS officials on the nature of the unpaid taxes that escape them. These hearings are being held with the express purpose of reorienting the federal budget around increased IRS capacity to find and recapture hidden sums of tax liability. With increased capability naturally comes increased scrutiny, but there are steps that you can take today to protect your net worth and your very liberty.

    The best step that you can take to secure your financial well-being and peace of mind is reaching out to the experienced Tax Attorneys and CPAs at The Tax Law Offices of David W. Klasing. We stay on top of all the recent developments at the IRS so that you do not have to. For a consultation about increasing enforcement action and what it could mean for you, call our offices at (800) 681-1295.

    Senate Finance Subcommittee Hearing on Tax Gap from Noncompliance and Evasion

    On May 11th, the Senate Finance Committee’s Subcommittee on Taxation and IRS Oversight held a public hearing entitled “Closing the Tax Gap: Lost Revenue from Noncompliance and the Role of Offshore Tax Evasion.” The hearing gathered oral and written testimony from some of the biggest names in federal tax enforcement today. The discussion centered around the unrealized tax revenue that the government misses out on every year and the reasons why.

    Officials struggle to estimate how much money goes unreported and uncollected each year. It is the consensus of experts, however, that the size and scale of income tax that is missed by the IRS annually has grown consistently over the past decade. Senator Sheldon Whitehouse (D, Rhode Island) told reporters that the difference between the amount owed, and the amount collected each year (otherwise known as the “tax gap”) could be a figure rising above a trillion dollars.

    Though shocking, this figure may not be far off. More than 50 major corporations with large presences in the United States paid nothing in federal tax for the 2020 tax reporting cycle. At the applicable federal tax rate, that income would have equated to roughly $8 billion, and that figure represents merely the income of which the government is aware.

    Corporate tax collection rates are at historic lows according to reports generated by the federal government. At a time when companies are seen to be generating historically high profits, the disconnect is illogical. The evasion tactics that unscrupulous individuals and companies use involve utilizing the discrepancies between U.S. tax laws and international regulations. The same government report that suggested the low American collection rate also indicated that Bermuda reported 10% of all reported U.S. multinational foreign profit.

    U.S. Government Response to Attempt to Shrink the Tax Gap

    Ironically, the federal government is planning to fix its money issues by spending more money. President Biden has made significant pushes towards expanding the federal budget for the IRS. The most recent legislative push would yield an additional $80 billion in funding for the IRS over the next decade.

    The influx of capital comes with a mandate that the IRS use their increased funding to more aggressively target individuals and corporations that are evading taxes through savvy measures involving hiding income in offshore vehicles. Increased funding for the IRS would allow the agency to take on more enforcement action and meet the heavy responsibilities it already shoulders. Added capital would beef up the department’s technical capabilities, allowing them to process more data and conduct more frequent and thorough audits of both individuals and corporations.

    The government views their budget expansion for the IRS as an investment. Many officials have stated publicly that they expect the $80 billion investment in the IRS over 10 years to return up to 400% in previously undiscoverable tax dollars over that same time frame. The government’s investment is only effective if the IRS can make back the money that they spend cracking down on tax evaders, so expect the agency to be much more active in the months and years to come.

    Preparing for Government Plans to Close the Tax Gap

    With all these signs pointing to increased IRS activity, you might be wondering whether you might attract the glaring eye of the federal government. It is certainly more likely that you might encounter the IRS in the future than it was in the past. If you are concerned about your past or present compliance with the Internal Revenue Code, you may want to consider taking steps to ensure your good standing with the government so that you do not become the subject of a government audit, eggshell audit, criminal tax investigation or ultimately face criminal tax charges.

    One key step that you can take to bolster your defenses against IRS enforcement action if you have engaged in tax evasion is engaging in a domestic or offshore voluntary disclosure. The voluntary disclosure process allows you to voluntarily inform the government about tax fraud that engaged in to illegally avoid paying federal income tax in the past. A taxpayer engages in a voluntary disclosure when they timely and completely provide accurate information on the shortcomings of their past tax filings. 

    Voluntary disclosure can be complex, but the system is in place to make life easier for both you and the IRS. Usually, voluntary disclosure results in a decrease in penalties for noncompliance with the tax code that would have applied in the absence of the program, but efforts to right past wrongs can backfire if carried out the wrong way. Navigating this path can be difficult on your own, so we recommend that you speak to our Tax Attorneys and CPAs if you think that voluntary disclosure may be in your best interest.

    Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) 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!

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    Concerned About Government Plans to Close the Tax Gap? Get Help Today

    The Tax Law Offices of David W. Klasing have the necessary expertise to provide you with critical information and ensure that you do not fall out of compliance. Call our offices at (800) 681-1295 to set up an appointment today.

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