TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, August 14, 2007

GAO: 61% of Sole Proprietors Cheat on Their Income Tax

The GAO has released A Strategy for Reducing the Gap Should Include Options for Addressing Sole Proprietor Noncompliance (GAO-07-1014):

Based on what IRS examiners could find, most sole proprietors, at least an estimated 61%, underreported net business income, but a small proportion of them accounted for the bulk of understated taxes. Both gross income and expenses were misreported. Most of the resulting understated taxes were in relatively small amounts. Half the understatements that IRS examiners could find were less than $903. However, 10% the tax understatements, made by over 1 million sole proprietors, were above $6,200. In this top group, the mean understatement of tax was $18,000.

For more, see Joe Kristan, 80-20 Rule and Tax Noncompliance.

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this is like Claude Raine's comment in Cassablanca: Rick there is gambling in the back room. I am shocked.

I use to tell developing countries that this type of tax evasion would only be stopped when businesses grew large enough to put a non-family member behind the cash register...then they would have to develop devices to protect themselves from the employee stealing....that would protect the tax collector too.

Posted by: sheldon s. cohen | Aug 15, 2007 2:24:50 PM