Expect Increased Criminal Enforcement of Employment Taxes

In 2001, the tax gap was estimated at $345 billion per year. Approximately 17% was attributable to the under-reporting of employment taxes. A more current estimate of the tax gap is expected to be released in the next few months, and the smart money is guessing close to $500 billion, which suggests that there are $75 billion of underpaid employment taxes every year ' a potential source of more revenue without having to raise taxes.

In July of last year, armed with a report by the Government Accountability Office, the U.S. Senate urged the IRS to crack down on payroll tax cheats. Members of the Senate Homeland Security & Government Affairs Permanent Subcommittee on Investigations said the IRS's overall approach on voluntary compliance must be scrapped in favor of filing tax liens and other penalties for repeat offenders. The IRS responded that the it was refocusing its efforts, but Subcommittee members emphasized the need for criminal prosecution of repeat offenders. “If you've gotten notice that you haven't paid your payroll taxes and you've gotten those notices every quarter for two or three years,” one Senator asked, do we need “a task force to tell us that we need to put people in jail for that?”