USA: Mazur and Plumley (2007) "Understanding the tax gap"

Article by Mazur and A Plumley reviewing IRS's estimation of the tax gap. The tax gap is defined as "the difference between the amount of tax owed by taxpayers under the Tax Code and the amount that is actually paid to the federal Treasury on time".

The article notes that the IRS' most recent estimates of corporation income tax, for 2001, are based on estimates derived in the 1980s which have been projected forward by assuming that the ratio between the gap and receipts has remained constant over time. In relation to this, the authors note:

Perhaps the most heroic assumption in this area, though, is that reporting compliance behavior has remained roughly constant for two decades. With substantial changes in financial planning, the characterization of corporate tax departments as "profit centers" instead of "compliance centers," and the perceived increased use of aggressive (and sometimes abusive) tax planning strategies, it seems very unlikely that reporting compliance behavior has not deteriorated over at least part of that time period. Given all these concerns, the corporate income tax gap estimates should be considered among the weakest in the entire Tax Gap Map.

For further information or advice please contact Pedro Fernandes.

Filed under Tax fraud.

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