Cheating by Business Costs $1.16 Billion a Year--IRS

The Internal Revenue Service estimates the government is losing as much as $1.16 billion a year because businesses do not report all their interest and dividend income, IRS Commissioner Lawrence B. Gibbs told Congress today.

But Gibbs, responding to a General Accounting Office study that found widespread evidence of such under-reporting, said no statistically valid study has been done giving solid figures for the full extent of such loss.

Gibbs said the IRS estimate was based on projections made from audits of tax returns of corporations and sole proprietorships, which are businesses owned by one person.

Those audits found that under-reporting of interest and dividend income was less than 1% by large corporations, 1.5% for medium-sized corporations and 4.8% for sole proprietorships.

In an effort to increase reporting of such income, Gibbs told a House subcommittee, the IRS will begin matching reports it receives on interest and dividend payments to sole proprietorships to the income tax returns filed by those concerns.

But he said the agency does not plan to institute a similar document-matching program for corporations because it would not be cost-effective. The accounting procedures used by corporations are more complicated and would require more follow-up by IRS agents than those used by sole proprietorships.