The following would constitute a component of the tax gap: A. Joe the taxpayer s

ID: 2589878 • Letter: T

Question

The following would constitute a component of the tax gap:

A. Joe the taxpayer simply refuses to file a tax return because he believes it is unconstitutional.

B. Mike, the consultant, does not receive Form 1099s showing that he earned consulting income from various clients; he does not report this income.

C. Susan, a single mother and nurse, simply cannot pay her taxes, so she files a return but does not remit any payment.

D. Two of the above.

E. All of the above.

A. Joe the taxpayer simply refuses to file a tax return because he believes it is unconstitutional.

B. Mike, the consultant, does not receive Form 1099s showing that he earned consulting income from various clients; he does not report this income.

C. Susan, a single mother and nurse, simply cannot pay her taxes, so she files a return but does not remit any payment.

D. Two of the above.

E. All of the above.

Explanation / Answer

As per IRS, TAX GAP is the difference of tax that should have been paid and what is actuallly paid on a timely basis.

There are 3 components of TAX GAP:

Non-filing:

Where no return is filed at all.

Under-reporting:

It includes under-stating the income or over stating expenses and deductions.

Underpayment:

Tax paid is lesser than amount reported as tax payable.

Analysis of situations:

Since, Joe is a tax payer; he has to file a return at any cost. So, not filing a return, will fall into the 1st component of TAX GAP

Even if Mike hasn’t received the form 1099, it does not mean that he has not earned consulting income. This falls into the definition of 2nd component of TAX GAP

Susan needs to pay the taxes if due and return of income has to be filed accordingly. This is in line with the 3rd component of TAX GAP

So, the correct answer would be "E: All of the above"