Contact: Rob Ostrander or Shana Stribling 202.224.5721
Thursday, April 27, 2006

WASHINGTON – U.S. Senator Kit Bond, Chairman of the Senate Appropriations Subcommittee on Transportation-Treasury, today held a hearing on the fiscal year 2007 budget for the Internal Revenue Service (IRS). Bond asked the IRS to take action on the tax gap and privacy concerns while praising officials for progress in administration and service.

“The tax gap – the difference between what taxpayers timely and accurately pay in taxes and what they should pay under the law – not only creates an unfair burden on taxpayers who voluntarily and honestly pay their taxes but also hurts our Nation’s fiscal stability for our future generations,” said Bond.

The tax gap does not appear to be shrinking, in fact some believe the gap may actually be higher than projected. Bond stressed that attacking this gap is about good government and our nation’s fiscal health. Government has a moral obligation in punishing those who unfairly burden honest citizens who voluntarily pay their taxes as their civic duty. Also, a persistent tax gap hurts our long-term fiscal and economic health. Even small or moderate reductions in the tax gap will yield significant results, Bond pointed out. Even a 1 percent reduction in the tax gap would yield some $3 billion annually.

Bond applauded the Administration’s goal to increase voluntary compliance to 85 percent by 2009, but insisted that more needs to be done. To achieve any reduction in the tax gap, multiple strategies should be employed, including simplifying the tax code, conducting more sustained research, obtaining better data on noncompliance, improving taxpayer service, enhancing enforcement, and leveraging technology.

While the tax gap remains a major concern, Bond praised the IRS for improved performance in other areas, particularly in tax administration. Also, Bond pointed out that electronic filing is growing, taxpayers are using the IRS website, telephone service and the accuracy of IRS’s responses to tax law and account questions has improved.

Bond commended the IRS for making major strides on the enforcement front. Enforcement revenue over the past five years has increased by $13.5 billion – from $33.8 billion to $47.3 billion – almost 40 percent. The IRS accomplished these results by stepping up audits, combating illegal and abusive tax shelters, and increasing criminal convictions. These actions are very positive in not only deterring taxpayers from cheating, but in increasing honest taxpayers’ confidence in government, said Bond.

Despite the gains the IRS has made, Bond stressed that this year’s budget request contains a number of budget assumptions that pose significant risks to the IRS, such as revenue through new user fees, savings, and “cap adjustments.” Overall, Bond opposes IRS budget cuts that he said will negatively affect tax payer service.

Bond told IRS officials that he has questions about the IRS’s proposed regulation on disclosure and use of taxpayer information. The IRS’s proposed privacy rule of the tax code raises concerns about taxpayer privacy being compromised. He expressed the need for the Treasury and the IRS to balance out the needs and problems to ensure maximum confidentiality of all taxpayer information to the maximum extent possible under the current statute and said additional legislative action may be needed.

Bond heard testimony from IRS Commissioner Mark Everson, IRS Oversight Board Chairman Raymond Wagner, Treasury Inspector General for Tax Administration Russell George, and National Taxpayer Advocate Nina E. Olson at today’s hearing.