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Millions in Taxes Overpaid, Millions in Taxes Uncollected

This article was written by in Taxes. 4 comments.


It’s always interesting to see stories in the media that seem to conflict with each other. Here is a case of conflicting messages, although both viewpoints may be true to an extent.

First of all, CBS reports that Americans pay too much to the IRS in the form of taxes. This happens mainly because people do not claim the exemptions to which they’re entitled.

A report issued by the federal Government Accountability Office says the number of tax returns on which itemized deductions are left off could be as high as 2.2 million. That report estimated that, as a result of taxpayers not claiming the deductions they could have been entitled to, they overpaid about $945 million, with an average overpayment of $438 per taxpayer.

The information comes from a report several years old, but no more recent report has been issued by the GAO. On the other hand, the IRS issues its own reports. Every year there seem to be reports issues by the IRS designed to scare taxpayers into obedience, whether it’s the supposed increase in audits for the taxpayers (November 2006, November 2005) or a accounting of unpaid taxes. Here’s what that Associated Press story says:

An IRS study last year concluded that the tax gap in 2001 was $345 billion. Of that, $197 billion came from underreporting on individual income tax returns and $88 billion from underreporting by corporations and the self-employed. The rest came from those not filing or not paying the proper amount… That translated into a “surtax” of about $2,680 per household in 2001.

On average, the IRS claims $2,680 is owed per household, going uncollected thanks to tax cheats, while the GAO believes $400 per household goes unclaimed.

The deadline for filing to receive unclaimed refunds from 2003 is coming soon, and the IRS has $2.2 billion waiting to be claimed from that year. I guess we’ll find out in 2010 how much in 2006 American overpaid — not underpaid — their taxes.

Updated August 9, 2011 and originally published March 12, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 2 comments… read them below or add one }

avatar donna jean

Growing up, my family always made the IRS sound like the big bad wolf — they were so scared of upsetting them. In fact, they’d skip out on deductions and credits they were entitled to because they didn’t want the IRS to come a’calli’. I wasn’t as timid because I’m all about keeping as much money as possible — when I talked about taxes with my mom, she urged me to not take the deductions and told them that an audit wouldn’t be worth it.

Heck, the IRS is welcome to audit me and I wouldn’t mine sitting through the process. I’d show up prepared with all the proof I need for every deduction and credit I claimed. Too bad my family has allowed the IRS to scare them into giving up their money.

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avatar Saving Advice

Unless you take an interest in finances, it’s east to miss a lot of the deductions that you qualify for. The regular form, while really not too difficult if you are familiar with it, is daunting to anyone who has had little tax experience. It would be nice if they truly did simplify the entire process…

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