
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, April 20, 1990                   TAG: 9004200766
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A/2   EDITION: EVENING 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

GOVERNMENT TO GET TOUGH ON BACK TAXES

Reducing the $100 billion-plus gap between the federal income taxes owed and paid on legal earnings could impose some unpleasant burdens on those who don't cheat, congressional auditors say.

It could mean higher prices for a roof replacement or fresh vegetables, more paperwork for small businesses and perhaps even withholding taxes from interest and dividends.

The Internal Revenue Service told Congress on Thursday that the tax gap is growing and likely to reach $100 billion this year and $127 billion by 1992.

"There are no quick fixes," IRS Commissioner Fred Goldberg reminded the House Ways and Means oversight subcommittee. Closing the gap, he said, will require tougher enforcement as well as better assistance to taxpayers.

Paul Posner, associate director of the General Accounting Office, said catching the wayward dollars will require some risks.

"New administrative or paperwork burdens may be opposed by IRS and others," Posner said. "Taxpayers' support may diminish when better enforcement, such as expanded information reporting, increases paperwork burdens along with the prices of goods and services from businesses and informal suppliers," such as roadside vendors and home-repair workers.

The GAO, an investigative arm of Congress, offered these suggestions for improving enforcement:

Require that income taxes be withheld from some payments made to one-owner businesses. The GAO noted some non-government authorities are calling for restoration of withholding from interest and dividends, an idea that Congress approved in 1982 and repealed because of public opposition a year later.

Use information from local licensing records to identify informal suppliers who may not report income, including child-care providers and others who usually deal in cash.

Require that those who make certain payments to corporations file reports with the IRS, in much the same way that a bank now must report payment of interest to an individual.

Crack down on corporations that use taxes withheld from workers to support a failing business.

In 1987, the latest year for which complete figures are available, U.S. individuals and businesses should have paid $505 billion in income tax, Goldberg said. Without any prodding by the IRS, they paid $411 billion, leaving a gross tax gap of $94 billion.

IRS enforcement measures, including audits and computer matching of earnings reports against returns, brought in $22 billion and left a net gap of $72 billion.

The biggest causes of the tax gap were: informal suppliers' failure to report income, accounting for $24.3 billion or almost 26 percent of the gap; large corporations, almost $17 billion; failure to pay taxes due at the time a return is filed, nearly $8 billion; failure to file individual returns, more than $7 billion; cheating on capital gains, $6.7 billion, and overstated deductions and exemptions, over $6 billion.

by CNB