Opening Statement on Closing the Tax Gap

On Thursday, April 19, 2012, the Subcommittee on Government Organization Efficiency, and Financial Management (chaired by U.S. Congressman Todd Platts) held a hearing entitled, "Problems at the Internal Revenue Service: Closing the Tax Gap and Preventing Identity Theft."  Testimony at the hearing was received by IRS Deputy Commissioner of Enforcement Steven Miller, National Taxpayer Advocate Nina Olson, Treasury Inspector General for Tax Administration J. Russell George, and the Government Accountability Office (GAO) Director of Strategic Service James White.  Rep. Platts provide the following opening remarks:

Our hearing today focuses on two key issues at the Internal Revenue Service (IRS).  First, it will address the tax gap between what people owe in federal taxes and what IRS ultimately collects.  Second, the hearing will review the increasing problem of identity theft-related tax fraud. 

Federal taxes make up about 96 percent of the government's total revenue each year.  Because of this, it is very important that IRS is able to effectively collect taxes and enforce federal policy.  The majority of Americans pay their taxes voluntarily and on time, but every year there is a gap between the amount of federal taxes owed and the amount IRS collects.  Earlier this year, the IRS released its most recent analysis on the tax gap, using data from 2006.  That data shows a $450 billion gap between taxes owed and taxes voluntarily paid.  IRS recovered $65 billion, making the net tax gap $385 billion.  According to the National Taxpayer Advocate, the average household must pay almost $3,400 more for the government to raise the same revenue it would have collected if everyone paid their taxes in full. 

There are many causes of the tax gap, including intentional underreporting, failing to file taxes, or math error.  Because of this, we need a multifaceted approach to achieve an effective and appropriate response and close the tax gap.  Using third-party information to verify tax returns could increase voluntary compliance.  The Treasury Department has recommended increasing penalties for people who purposely do not comply with federal tax law.  Simplifying the federal tax code could also help by making it easier to file taxes and reducing the opportunity to commit willful tax evasion.  We will hear more from our witnesses today about solutions to close the tax code and better serve taxpayers.

This hearing will also address identity theft-related tax fraud.  Identity theft affects thousands of taxpayers each year, and has a significant impact on its victims.  Identity thieves often steal personal information from taxpayers including names, social security numbers, and addresses.  With this information, the thieves can file fraudulent tax returns with the IRS and receive the refunds that are owed to the legitimate taxpayer.  Victims may not even know they have had their identity and tax return stolen until they file their own returns and IRS notifies them.  It can often take months for IRS to resolve these cases and issue refunds to the legitimate taxpayer.
 
Identity theft-related tax fraud is a serious and rapidly growing problem that has been the focus of two of this Subcommittee's previous hearings.  While significant work is being done to address this problem, we must do more to protect taxpayers from criminals who steal their identities and their refunds.  Just this week, authorities reported that a man working for a health care nonprofit stole the identities of more than 50 brain injury patients to steal over $20,000 in fraudulent refunds.

The American people deserve a government that protects the taxes they pay and fairly enforces tax law.  We need solutions to ensure that honest taxpayers are not unduly burdened because others do not pay their share.  We must also work to reduce identity theft and prevent it before payments are issued to criminals.  Today we are joined by four experts who have extensive knowledge about the problems that exist within the federal tax system.  I look forward to their testimony and continuing to work with them to prevent tax fraud and fairly administer the tax code.