Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 18, 1991 TAG: 9104180472
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Long
The corporate tax gap is expected to be about $31 billion next year.
The General Accounting Office found a dramatic rise in non-compliance by small corporations, which include mom-and-pop businesses as well as many doctors, lawyers and other professionals.
"New IRS audit results show that 2.3 million small corporations [about 80 percent of all corporations] voluntarily paid only an estimated 61 percent of the tax they owed in 1987," Jennie Stathis, an associate director of the GAO, told the Senate Permanent Subcommittee on Investigations. That figure dropped from 81 percent compliance seven years earlier.
The Internal Revenue Service is projecting an increase in small corporations' compliance next year - but only to 68 percent. By comparison, large corporations are expected to pay 83 percent of what they are supposed to next year; the IRS is forecasting individual compliance will remain at a steady 82 percent.
The IRS estimates this year's tax gap is in the $100 billion neighborhood and will climb to about $114 billion in 1992. The gap is the difference between federal income tax that is owed on legal earnings in a year and what is paid voluntarily - without IRS enforcement actions.
In the 10 years since 1982, Stathis said, the corporate tax gap will have grown by 190 percent, compared with 60 percent for individuals.
The gap has become a popular subject for congressional hearings as the federal budget has soared to record levels and lawmakers have run out of popular ways of raising taxes to pay for programs. Wednesday's hearing focused on the corporate tax gap.
Of special interest to the committee was the IRS's 25-year-old Coordinated Examination Program, CEP, which targets nearly 1,600 of the nation's biggest corporations for intensive audits. The IRS spends about 30 percent of its total auditing budget on these businesses.
Even though the IRS is recommending larger tax assessments against these corporations, the GAO said, the corporations usually win in the long run after they appeal.
Sen. Sam Nunn, D-Ga. and the subcommittee's chairman, said these figures "suggest that IRS, and CEP in particular, may no longer be capable of ensuring voluntary corporate compliance with our tax laws."
"IRS is apparently losing almost $6 of every $10 in recommended taxes and only assessing $4 after the appeals process," Stathis said.
More and more corporations are appealing. In January, the GAO said, $36 billion in taxes was being disputed by those who were appealing $1 million or more - a 44 percent increase in three years.
The GAO complained that the IRS - after 25 years of experience with CEP - still has no way of telling how much money the program produces and what kind of tax issues are most likely to be contested by businesses. The report criticized IRS training of some key employees and found that some IRS departments often work at cross purposes.
"In 1977, IRS was three to five years behind in auditing tax returns from large corporations," Stathis said. "Today, IRS is auditing returns filed in the mid-1980s and corporations and revenue agents continue to complain."
IRS Commissioner Fred Goldberg Jr. said the agency is continually improving its training programs while seeking to balance the need for revenue against the compliance burden on taxpayers.
As for the fact the IRS loses most of its big corporate tax cases on appeal, Goldberg said a high-level IRS lawyer managing a major case earns an average of $70,000 a year while a partner in a typical large law firm representing a corporation is paid $319,000.
The U.S. Chamber of Commerce disputed most of the GAO Report but, in a statement to reporters, agreed with the IRS and the GAO on the need for simplification. "The real fairness issue with corporate taxes is this complexity, not tax compliance," said Benson Goldstein, tax policy manager for the chamber.
IRS ESTIMATES ON GROWING TAX GAP
The Internal Revenue Service estimates that by next year the tax gap - the difference between federal taxes owed on legal income in a year and what is paid without IRS enforcement action - will have grown to almost $114 billion.
Here is what goes into that figure:\ \ Individuals:$82.6 billion
\ Unreported income: $62.8 billion\ Overstated deductions: $8.1 billion\ Math errors: $1.5 billion\ No return filed: $10.2 billion\ \ Corporations $31.1 billion\ \ Big corporations: $23.7 billion\ Small corporations: $7.0 billion\ Trusts, etc.: $0.4 billion\ - Associated Press
910418 TAXGAPLIST STORY #984 TOPIC KEYWORD DESK AUTHOR:APA062704/18/91 carr AM-TaxGapList 04-17 0103 job 129 APDS 4/17/91 13:49:4 B5 tax gap list headline
Input file was 0137 Output file was /asst/csi/0418/pass2/0152
by CNB