Deficits are high, and taxes need to be higher to pay the high costs of government. But raising taxes is politically difficult. So, where can the IRS look to increase revenues? The “tax gap”.
The Tax Gap Misclassification Solution
On February 4, 2009, “TIGTA” (Treasury Inspector General for Tax Administration) issued a report and recommendation noting, among other things, that the IRS has not done a comprehensive study of work misclassification since 1984. In that year, the IRS had estimated that misclassified employees accounted for understatement of FICA, federal withholding, and unemployment taxes of approximately $1.6 billion. According to the TIGTA report, that underpayment is now estimated to be around $2.72 billion. This is one of the reasons that the TIGTA report recommended that the IRS should conduct a study (meaning audits):
Recommendation 2: The Deputy commissioner for Services and Enforcement should consider conducting a formal National Research Program reporting compliance study for employment taxes that includes measuring the impact of worker misclassification on the tax gap.