Millions in Taxes Overpaid, Millions in Taxes Uncollected

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.