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Hoffman testifies on "tax gap." (Arthur S. Hoffman, chairman of the American Institute of CPAs)


Likely causes for tax law noncompliance and the resulting "tax gap" were presented by Arthur S. Hoffman, chairman of the American Institute of CPAs federal taxation executive committee, in testimony before the House Ways and Means Subcommittee on Oversight.

According to Hoffman, the extreme complexity of federal tax laws and regulations "make it literally impossible for many taxpayers to be able to determine the amount of taxes they owe." Moreover, the complexity has eroded public confidence that the law is treating everyone fairly. "The uneasy, perhaps even subconscious, feeling that others are escaping tax can be used as a rationalization for cutting a few corners," he said.

He added that what Congress intends as a tax incentive may be perceived by others as a tax loophole. "The perception that Congress is intentionally allowing wealthy taxpayers and big business to escape taxes legally," Hoffman said, "can be a strong motivation for others to create their own tax savings."

Other possible causes he listed for noncompliance include

* Increasing government rules and regulations for payroll taxes, which provide motivation for many businesses to keep employees off the books.

* A perception of widespread waste and inefficiencies in government.

* A lack of understanding by taxpayers that underground types of income are taxable.

Frequent change. Hoffman also linked noncompliance to the lack of stability in the tax laws. In the past 25 years, he said, 27 major revenue acts have significantly affected the tax law, surpassing the ability of the secretary of the treasury to issue timely and adequate guidance for taxpayers and preparers.

In order for the tax system to work, Hoffman said it must be generally self-administrable, providing citizens with "trust in the system, confidence that the system is sound and fair and a general level of understanding of the law."
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Publication:Journal of Accountancy
Date:Jun 1, 1990
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