A recent Reuters report indicated that the number of U.S. citizens filing false tax returns or simply not filing tax returns at all is increasing.
Larry Levitan, Chairman of the IRS Oversight Board, made the same observation in his recent testimony before the House Committee on Government Reform. A survey performed by the Oversight Board in the summer of 2001 showed that only 76 percent of respondents believe it is not acceptable to cheat on one's income tax forms, compared with 87 percent in 1999. Mr. Levitan concluded that the decline in IRS enforcement procedures in recent years has required the agency to rely more heavily on voluntary compliance, and that "the public's attitude toward voluntary compliance is beginning to erode."
Mr. Levitan spoke of several key areas where compliance is lacking:
- K-1 pass-thru information. "The IRS estimates that perhaps $100 billion of pass-through income is unreported every year." The IRS has instituted a new matching plan whereby K-1 shareholder, partner, and beneficiary information will be matched with the individual tax returns of the pass-through recipients.
- Offshore credit cards. Credit cards issued outside the United States enable citizens to hide income and spending habits from IRS examiners.
- Earned Income Credit confusion. A recent study by the Treasury Department determined that nearly one-third of the refunds sent out as a result of the Earned Income Credit - approximately $9 billion - were sent out in error.
Mr. Levitan called for an increase in IRS taxpayer research, currently in progress with a renewed emphasis on random audits, a renewed focus on modernizing the IRS's outdated computer system, and the attention of Congress on providing adequate funding for the agency to accomplish its goals.