IRS to Focus on Evasion Schemes

The Internal Revenue Service on Thursday announced plans to focus more attention on high-income individuals and those involved in tax avoidance schemes.

The intent is to uncover those who avoid taxes and hide income, instead of just checking returns for mistakes or simple omissions.

IRS Commissioner Charles Rossotti said the aim is to free up auditors to focus on such areas as tax shelters, offshore credit cards used to hide income and wealthy people who fail to file returns.

“The real world is such that we have limited resources,” Rossotti said. “We are trying to figure out as best we can where is the most threat to the system.”

The IRS estimates the nation’s “tax gap,” the difference between income taxes that should be paid and what is collected, at $207 billion annually.

A significant portion of that lost revenue is because of tax evaders, he said.

Much of the unpaid tax bill comes from income that is never reported to the IRS.

To get at this problem, the IRS has developed a statistical method of selecting returns with a high probability of unreported income.

Among the tax avoidance schemes to be targeted for audits are nonexistent slavery reparations, abusive tax shelters and false payroll tax returns.

Rossotti said 60% of income taxes are paid by those earning $100,000 or more.

The IRS has been working to increase the number of returns it audits, which rose slightly to 732,000 last year--about one in every 173--but is far below the 1.9 million audited in 1996.