The folks who have been harping on the “tax gap” these last few years seem to have finally gotten the attention of Congress. It’s easy to see why: the “tax gap” is being sold as free money — you don’t have to risk your political neck by supporting a tax increase, you just have to write a little legislation, give the IRS some more enforcement money, and, presto! there’s a bigger budget to play with (or to feed the military-industrial complex’s “strategic appetite”):
- ’s Los Angeles Times: “Lawmakers see pot of gold in tax gap”
- ’s New York Times: “Democrats Seek Unpaid Taxes, Setting Up Clash”
Aside from just giving more money to the IRS to spend on enforcement, the one gap-closing proposal that looks like it’s on the fast-track to enactment is one that would give the IRS more information about the basis of purchased stock by requiring brokerages to report this information:
The I.R.S. estimated that it lost about $11 billion in from people who understated their capital gains after selling stock. According to the agency’s review of tax returns , a year when the stock market was plunging and losses were more common than gains, about 38 percent of all people underreported their capital gains.
The problem, I.R.S. officials said, is that brokerage firms report only how much money a person receives from the sale of stock, not how much the person paid for it. Without an audit, the government has no way of verifying the profits that people report.
Nina Olson, the IRS’s independent taxpayer advocate, has proposed that Congress require brokerage firms to report a person’s purchase cost as well as sales proceeds to the government. [Rep. Rahm] Emanuel has introduced a bill based on the idea.
Dubya’s just-released budget proposal includes this proposal as well (“Budget Plan Requires Reporting Stock Purchases to IRS”).