Tax Cheats Beware: Compliance Support at All-Time High

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The 2005 IRS Oversight Board Taxpayer Attitude Survey, released in late February, revealed that 88 percent, or nearly nine out of ten Americans, feel that it is “not at all” acceptable to cheat on your income taxes. This is the highest level of support since the Internal Revenue Service (IRS) Oversight Board began tracking attitudes towards tax cheating in 1999. In addition, 72 percent, or nearly three out of four Americans agree it is everyone's civic duty to pay their fair share of taxes.


“There seems to be many more taxpayers who believe it's important to follow the rules and pay what's owed than there are those who feel it is okay to get a free ride – that's great news,” IRS Oversight Board Chairman Raymond T. Wagner, Jr. observed in a prepared statement. “And while most taxpayers continue to feel strongly that the IRS should target large corporations and high-income individuals who cheat on their taxes, they also believe it is important to ensure compliance from other groups, such as businesses and lower income taxpayers. In other words, the great majority feels that everyone should pay what they owe – with no exceptions.”

When it comes to turning in tax cheats, 30 percent of those surveyed agreed that it was everyone's personal responsibility to report anyone who cheats on their taxes. It may be a personal or even a moral responsibility, but turning in tax cheats can also be profitable. Bankrate reports that individuals may receive up to 15 percent of the amount recovered in taxes and penalties if the information they provide to the IRS' Criminal Investigation unit is sufficiently detailed to start an investigation and plays a role in the recovery. If the information provided is not specific, but nonetheless results in an investigation and recovery, the informant may receive only 10 percent of the amount recovered. Information leading to an investigation, but with no direct relationship to the recovery of funds, may result in a reward of 1 percent of the monies recovered. The IRS, however, has no obligation to pay informants for information.

“We determined from a study that one in ten informants actually asks for a reward and approximately one in ten of those gets one,” Jeaneen Heiskill, IRS senior program analyst told Bankrate.

Even if an individual asks for a reward and provides enough detailed information to merit one, it can take two years or more for the reward to be paid, according to Bankrate.

Nor is the IRS alone when it comes to going after tax cheats. States like Minnesota are putting more effort into tracking down both businesses and individuals who don't pay all the state taxes they owe. The Associated Press reports that, according to a study released last week by the Office of the Legislative Auditor, 60 percent of the Revenue Department's money went for tax enforcement in the two-year budget period ending in June 2005. That's up from 43 percent at the start of the decade. The compliance and collections sections have also increased staffing to the current level of 740 employees. Even with these improvements, the report indicates that, based on tax data from 1999 and 2000, the state could still be missing out on a billion dollars, or more, in income and sales tax revenues from businesses and individuals.

In California, Assembly Bill 1418 would make the names of tax cheats, who have exhausted all their appeals and not filed for bankruptcy, public in a last ditch effort to collect the taxes owed to the state. Legislation passed in January would require California's two largest tax agencies to publish lists of their 250 largest debtors, typically those owing $100,000 or more in sales, use, and personal or corporate income taxes, according to the Sacramento Bee. The 500 largest debtors owe the state more than $340 million, the Sacramento Bee reports, citing a legislative analysis of the bill sponsored by Assemblyman Jerome Horton (D-Inglewood). The California Board of Equalization (BOE) and the Franchise Tax Board estimate that only 4 percent of the taxes owed would get collected, many have been on the books for years, generating a total of $13.6 million, according to the Sacramento Bee.

The IRS Oversight Board study also found wide-spread support for additional funding of both assistance and enforcement efforts, with 67 percent of taxpayers believing the agency should receive extra funding for assistance and 63 percent in favor of extra funding for enforcement.

“What these numbers tell us again this year is that the American people want a balance in their tax administration system,” Wagner concludes. “While they want the IRS to actively pursue tax cheating, they also value the important services the IRS offers to help them comply with a very complex Tax Code. We believe that one of our most important responsibilities is to ensure that the IRS provides this critical balance between enforcement and customer services.”

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