Question

There are pertinent political and economic issues relative to the tax gap. Complete the two items below: the main sources of the tax gap and issues that arise concerning the tax gap.

The main sources of the tax gap are:

Underreporting of (deductions/ net taxable income/ nontaxable income/ nondeductible expenses) .

Underpayment of (estimated payments/ tax liabilty) .

(late returns/ amended returns/ returns not filed) .

The issues that arise concerning the tax gap include the following:

Should the IRS hire more (administrative/ enforcement/ supervising) personnel, and what should they examine?

Can abuse of confidential information result from too much (audit/ congressional/ treasury) activity?

Why should the government not attempt to close the tax gap in full and thereby eliminate most of the (federal deficit/ trade deficit/ annual budget deficit/ annual budget surplus) ?

Answer 1

The main sources of a tax gap are :

Under reporting of net taxable income. This could be on account of overstatement of deductions in order to pay lower taxes to the government.

Underpayment of tax liability. The tax liability or the estimated amount that the government expects is greater than the amount that is actually been paid by the assessee and this causes a significant tax gap.

The IRS should hire more supervising personnel who examine the granularity of the tax payments that are actually being made versus the amount that is actually owed to the government. This supervision is required in order to avoid evasion of taxes. The superviser shoukld exmaine the amount of deductions that are being taken by the assesee to ensure that the deductions are not being overstated.

Abuse of confidential information can result from too much audit activity.

The govenment should not attempt to close the tax gap in full and thereby eliminate most of the annual budget deficit.