‘Uncle Sam’ cheats start to worry tax collectors

Press, 15 May 1985, Page 34

‘Uncle Sam’ cheats start to worry tax collectors

By

KENNETH BARRY

of Reuters (through NZPA)

Washington United States tax collectors, now grappling with millions of income tax statements, are expressing concern over a growing public attitude that it’s all right to cheat “Uncle Sam.”

Officials at the Internal Revenue Service (1.R.5.), the world’s largest tax administration, say the “tax gap” — the difference between what the Government is owed and what it gets — has risen dramatically in recent years.

Estimates are that tax cheating cost the United States Government JUSBI.S billion ($179.3 billion) in 1981, the latest figures available, compared with SUS2B billion ($61.6 billion) in 1973, the first year surveyed. To many Americans the idea that tax-dodging is wrong has become blurry at best, says Mary Sprouse, a California-based tax expert and former I.R.S. audit manager.

“Tax cheating used to be thought of as a criminal activity, similar to theft, but there has been a blurring of that line,” she said. “It’s become sort of ‘street

smart’.” As an example of common tax-dodging gambits, Ms Sprouse said many babysitters do not accept payment by cheque because cash income is easier to conceal from the tax collector. Similarly, experts say, people who work at second jobs often don’t report the income in the earnings statements which must be filed by an April 15 deadline. Others exaggerate deductions for business entertainment or the use of their cars for work.

Some doctors, lawyers and pharmacists “skim” income by depositing only customers cheques, not their cash payments, to hide part of their tax liability, says a former United States assistant Attorney-General, Mr Robert Davis.

It all adds up to a noncompliance rate of 20 per cent of the total amount of taxes owed, officials say. This year the United States Government expects a record 100 million returns in a system that relies on people working out their own tax liability and then on voluntary compliance.

“If it weren’t for the voluntary assessment by the taxpayer himself, we would

be in sad shape,” said Frank Malanga, director of research for the I.R.S. Mr Malanga says 20 to 30 per cent of American taxpayers have admitted to cheating in surveys that protected their identity. He estimates the real figure is even higher. A 1984 poll for the I.R.S. conducted by the firm of Yankelovich, Skelly and White showed that many people simply assume that tax evasion is a commonplace practice. One out of four held that more than half the population does it. Two-thirds believed they paid more than their fair share.

The complicated American tax code produces examples every year of wild discrepancies in amounts paid. In one survey of 88 returns, 19 of those with gross annual incomes averaging $U5250,000 ($550,000) Said less than SUSSOO >1100) in taxes.

The same survey said a family of four earning $U545,000 ($99,000) would pay about SUS6OOO ($13,200) in taxes on average. Evidence of tax-dodging is piling up at a time when President Reagan is pushing reform to simplify the system, bring down tax rates

and correct inequities. “The present situation has led to a loss of respect for the tax system, which translates into a loss of respect for Government generally,” the Treasury Secretary, Mr James Baker, said in a recent speech to economists. The Government’s chief weapon against cheaters — the I.R.S. audit — is dreaded by taxpayers but limited in scope. It can be triggered when I.R.S. computers, programmed with secret formulas, spot a suspicious return and mark it for closer scrutiny by investigators. Only a small percentage are prosecuted, said an I.R.S. spokeswoman, Ellen Murphy, “but they almost always are convicted and receive jail sentences.” Even so, the I.R.S. has had to reduce individual audits to focus more on difficult illegal tax shelter schemes.