TIGTA Reports Billions of Dollars of Uncollected Taxes

Despite having thousands of employees and information matching programs in place, the Internal Revenue Service has not always been able to follow up with every instance of a tax discrepancy. However, a recent report from the Treasury Inspector General for Tax Administration (TIGTA) advises the IRS to take further measures to help lessen the “tax gap,” the difference between the amount of taxes owed to the government versus the amount actually received.

The new report reveals the IRS is missing billions of dollars of uncollected revenue due to underreported payroll taxes. The IRS currently uses a Combined Annual Wage Reporting Program to compare withholding information reported on employment tax forms versus documents filed by employers with the Social Security Administration. The program flags discrepancies and identifies cases with the highest potential tax amounts. Yet, TIGTA reports that of 137,272 analyzed cases, the IRS only worked on about 17 percent of them – ignoring about $7 billion worth of uncollected money. Furthermore, TIGTA reported that the IRS is using random selection to choose the workload rather than choosing cases with a higher average potential.

As a result, TIGTA has made recommendations to the IRS suggesting it evaluate its current processes and update case selection criteria. Out of seven recommendations, the IRS agreed to six of them — TIGTA’s call to combine prior- and current-year discrepancy cases from the same employer was rejected. However, the IRS did say it would use prior-year discrepancies as part of the current-year selection criteria.

Now What?

Although the future is not set in stone, it’s safe to assume there will be an increase in payroll tax enforcement. So, if you have the slightest concern over whether you’re accurately reporting your small business taxes, it’s advised to reach out to an expert. Also, if a second party is taking care of your payroll taxes, make sure it is a reputable resource. Even if you are unaware of illegal practices and the second party keeps any money for itself without your knowledge, you will still be considered a responsible party by the government.

If you are aware of discrepancies on your past tax reporting, especially repeat offenses, you’ll want to start saving and get it right with the IRS. If you have any questions about correctly managing your payroll taxes for you and any employees, our team is always on hand to guide you to success
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